The Government of Ukraine has approved the appointment of Herman Smetanin as the head of the JSC "Ukrainian Defense Industry," formerly known as state concern Ukroboronprom until its transformation by the Government's decision in March 2023.
The appointment enters into force today, on June 28, and lasts until a supervisory board is created and a proper selection process is completed.
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Minister of Strategic Industries of Ukraine Oleksandr Kamyshin notes that the new Ukroboronprom director has been entrusted with three main tasks:
- to increase the production rates for Ukrainian weapons and ammunition;
- to build an effective anti-corruption infrastructure;
- to reform the Ukroboronprom in deeds, not words.
The last item in this list emerges from the questions mounted up before his predecessor Yurii Husiev who chaired Ukroboronprom from December 2020 until June 27, 2023, and was fired by presidential decree. Husiev's main task and promise was to reform the state enterprise, precisely speaking, to liquidate Ukroboronprom.
Reform in a Stall
A brief retrospective is in order. When Yurii Husiev took office in 2020, he announced in his appointment speech:
"The plan is that next year Ukroboronprom, which back in the day was created by [Dmytro] Salamatin and has suffered many corruption scandals, ceased to exist. New holding companies will be created, they will operate according to the principles of corporate management, OECD [principles for] transparency."
However, neither in the next 2021 nor in 2022, state concern Ukroboronprom was liquidated. Only on March 21, 2023, the Government decided to create the JSC Ukrainian Defense Industry in its place. As noted by Ukroboronprom itself:
"In place of the concern, a modern high-tech defense company is emerging, which will centralize management of the industry's leading enterprises in the fields of armored machinery, aircraft manufacture and repairs, marine and radar systems, high-precision weapons and ammunition."
In other words, instead of the state concern Ukroboronprom, which was supposed to provide central management of all defense enterprises, this function would be performed by the joint-stock company Ukrainian Defense Industry with 100% state ownership. But even this change in the form of a legal entity did not happen. Experts believe the reform was not progressing due to the fact the government's decision did not specify who exactly should register the new state defense company, although the name of Husiev was mentioned in the draft.
Even that sort of transformation from a state concern to a joint-stock company took three whole years, not to mention other aspects of the reform in general. It became at the very least one of the reasons for Yurii Husiev's dismissal and thus one of the key tasks for the new director. On top of that, according to the reform plan, every state enterprise within the concern must be transformed into business companies (LLC/JSC). Currently, 27 member-enterprises of Ukroboronprom have already done that, another 29 are still in the process of transformation.
Facing the Challenge
Herman Smetanin is the new chief of Ukraine's united defense industry. Portfolio: starting 2014 he worked at several tank-making enterprises within Ukroboronprom, held the position of the chief designer and engineer at the Lviv Armor Plant until 2020, was the first chair of the Malyshev Plant (2020-2021) and Kharkiv Armor Plant (2021 – April 2023), returned to Malyshev Plant for the last months before his biggest appointment.
Smetanin now faces the same task his predecessor failed to complete but in objectively tougher conditions because the Ukrainian defense industry in 2020 and 2023 are two different things.
For starters, there were over 150 missile, bomb and artillery strikes on the facilities of Ukroboronprom since February 2022. Many enterprises were occupied by russians for a long time, suffering in terms of general condition and production capacity. Some of those were irreplaceable for making high-tech targeting systems and ammunition.
That means an entirely different tempo and direction of efforts, always keeping up with repairing foreign materiel, implementing modernizations based on experience gained throughout the war. All of that while the enemy has each of your facilities within a missile's reach.
Another difficulty is the rapidly changing landscape of the Ukrainian defense industry overall due to foreign defense giants entering Ukraine. This includes BAE Systems, Ukraine's plans to launch domestic production of CV90 IFVs, Rheinmetall's willing to make Fuchs on Ukrainian territory, etc.
And this is only the beginning of a process that was unfolding in the whole world for dozens of years but went past Ukraine because the country was going down the path of voluntary isolationism. That is, by adhering to the motto "we'll produce everything ourselves," Ukraine followed the footsteps of North Korea and iran.
Why it was a bad idea, figures say louder than words: BAE Systems, according to the results of 2021, received a revenue of USD 25.7 billion (7th first in the world) having a total personnel of 93,000 in 40 countries. With the combined personnel of all Ukroboronprom enterprises being about 70,000, Ukraine's state defense company gained 0.75 bln in revenue, data provided by Defense News. If there is any chance (and any need) of competing in a situation when a single BAE Systems worker generates $276,000 against $10,700 at Ukroboronprom – is an open question.
In summary, the range of tasks and conditions for reforming Ukroboronprom but "in deeds, not words" are much more difficult than on the starting line. Against such a background, the reform itself is just one of myriad vectors of work when a more important duty of supplying the Ukrainian Armed Forces with weapons and equipment must be done in parallel.
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