Britain has an opportunity to help ukraine build a major defence industry

Matthew Lynn 03 September 2023 10:00am BST It may take a few months, or even a year or more, to come to fruition. And there will no doubt be plenty of obstacles along the way. And yet, there

is no mistaking the significance of the announcement this week that the UK’s BAE Systems plans to start manufacturing artillery in Ukraine. Volodymyr Zelensky’s government desperately needs

more weapons if it is going to keep fighting what has increasingly turned into a brutal war of attrition, and in the end it will have to build those on its own soil. If the UK can make this

work, it could significantly help Ukraine achieve an ultimate victory, as well as giving a huge boost to Britain’s defence industry. We just have to make sure we have the will to make it

happen – and don’t let ESG-obsessed fund managers reluctant to back any defence stocks get in the way. As the autumn starts, it is hard to see that there will be any quick end to the war in

Ukraine. The spring and summer offensive has made only limited gains, while the Russian mutiny by Yevgeny Prigozhin, the leader of the Wagner Group of mercenaries, fizzled out, and its

leader was killed. Without a sudden breakthrough, and with the Russian lines just about holding, it now looks as if the battlefront will have changed little by the time winter descends. The

outcome of the war will be decided next spring, or perhaps the one after that. Ukraine will need more weapons to keep fighting for as long as that, and it is increasingly clear that it will

need to make them itself. Russia has been a major military power for a century, and, whatever the other faults in its economy, it has inherited a military-industrial complex from the Soviet

era that can still churn out plenty of basic firepower even if Western sanctions mean it struggles to manufacture high-tech weaponry. Ukraine has a long way to go to come even close to

matching that basic capability, never mind being able to make sophisticated weaponry. That is what makes the deal with BAE potentially so significant. True, it is not a done deal yet. After

a meeting with Zelensky in Kyiv last week, BAE’s chief executive, Charles Woodburn, said the company had agreed to set up a legal entity in Ukraine that “paves the way for us to work

together to provide more direct support to the Ukrainian armed forces”. BAE already supplies much of the equipment the Ukrainian soldiers are using, such as the M109 self-propelled

howitzers, the M777 artillery piece, and truck-mounted Archer system that is manufactured in Sweden. It remains to be seen what precise role a Ukrainian unit of the company would play, but

it could well include local assembly of weapons, or in time full manufacturing. Even so, it is an important first step. In reality, local manufacturing has two key advantages. First, it is

far closer to the frontline, and can be a lot more responsive to what the military needs. The shorter supply lines are, assuming they can be protected from Russian missile attacks, the

quicker munitions can be moved up to where they are needed on the frontline. Next, it means Ukraine is not constantly having to raid the stockpiles of its allies. That might have worked for

the six months of warfare, which was the most that anyone envisaged when the conflict started. But as the battle drags on and on, it will need to make what it needs itself. The stockpiles

are running low, and soon there will be little left to offer the country. The money to build a domestic industry is there, at least for now. President Biden has just asked Congress for an

extra $40bn (£30bn) to be provided in assistance, and while the European Union has been a lot slower to help, its latest budget plans include €19bn (£16bn) of help for its eastern neighbour.

0309 Military aid to Ukraine True, weapons can be very expensive, but even so, $50bn to $60bn still buys you a lot of kit, especially when most of it is guns, ammunition and artillery

instead of aircraft carriers and submarines. So long as the American and to a lesser extent European aid keeps flowing, and even more as it keeps rebuilding its own industries in the 70pc of

the country that is away from the conflict, Ukraine can afford to invest in building the defence industry it needs. The UK should be a natural partner for that. We were one of the first

countries to support Ukraine after the invasion, helping it with money and weapons at the time when they were most needed, and backing it at a time when other major countries, such as

Germany for example, shamefully expected it to be defeated very quickly. There is plenty of goodwill on the Ukrainian side towards British companies and investment. And along with a few

rivals such France, the UK has a long history of both innovation and manufacturing excellence in defence. That kind of expertise cannot be summoned up overnight. Over the last few years,

Britain’s defence industry has been slipping down the world rankings, especially as countries such as China rise in prominence. The UK’s defence exports peaked in 2018 at £16bn, according to

data from the Department for International Trade, and by last year had fallen to less than half that level. True, ESG-obsessed fund managers may not like it, and a few of the more militant

among them may even refuse to invest. But by partnering with Ukraine, British defence companies have the opportunity both to provide the equipment the country so desperately needs to hold

the line against Russian aggression, and to rebuild their own share of the global market. Every army in the world is going to want the weapons that have proved themselves on the battlefields

of Donbas. The UK will be in a position to supply them. That could be quite a prize. All it takes is the will to actually make it happen.