KSE Institute has published a comprehensive study of Ukraine’s dual-use market — products used in both civilian and military contexts. It is one of the studies KSE Institute presented during the Ukraine Recovery Conference 2026, alongside other analytical materials on Ukraine’s recovery and economic resilience.

The study explains how this market is structured, which segments are growing the fastest, and what sources of financing are available to the sector — from government grants to instruments offered by development finance institutions. It also shows how Ukraine’s partners can better coordinate support and direct investment in line with the country’s strategic industrial priorities.

In 2024, Ukraine’s total defence output was estimated at €9.3 billion and dual-use production at €5.5 billion (across more than 3,400 companies). The two overlap by about €3 billion — output that is both considered military and dual-use.  This  €5.5 billion dual use market can be financed through a broader range of instruments unavailable for purely military production. Defence industry products — primarily UAVs, unmanned ground vehicles (UGVs), and electronic warfare (EW) systems — account for 54% of this figure, while the remaining 46% consists of components: metal processing machinery, communication equipment, aircraft parts, navigation systems, and optical instruments.

Unmanned aerial vehicles account for 50% of dual-use market output. In 2024, the sector reached €2.7 billion — nearly 100 times higher than the €27 million recorded in 2020. The number of active producers grew from 35 to 155 companies. Market structure has shifted significantly: from concentration among a handful of large enterprises to a broad distribution across small and medium businesses, which now generate more than half of the segment’s revenues. The top five producers still control 41% of revenues; current liabilities reached €1.97 billion in 2024, reflecting both the scale of financing mobilised and a growing reliance on short-term resources.

Similar dynamics are visible in other segments: the electronic warfare sector grew more than tenfold since 2021 (€215 million in 2024), metal processing machinery expanded 64-fold (€811 million), communication equipment grew sixfold (€379 million), and navigation and sensor instruments rose 62% (€214 million). Across all sectors, the same structural shift is underway: the share of small business is growing, ownership structures are diversifying, and the participant base is broadening. Medium-sized enterprises (50–500 employees) form the financial backbone of most segments, while large producers ensure output stability and the capacity to fulfil long-term contracts.

Government grants remain the primary source of financing — above all through the Brave1 cluster, which disbursed $66 million in 2025 and supported more than 1,500 companies. Private and international investor interest is also growing: total investment in 2025 is estimated at $51 million, while at Defense Tech Valley 2025 in Lviv, four international funds announced planned commitments exceeding $100 million. While the dynamics is positive, disclosed finance is too small to explain the sector’s production surge. The likely growth engine is Ukrainian retained earnings, founder/private money, capital from non-defense businesses, and procurement-driven working capital.

A new EU-backed financing channel is also emerging. Under Pillar II of the Ukraine Facility — the Ukraine Investment Framework — six facilities are now operational or being developed by Ukraine’s NDI, France’s Bpifrance, Finland’s Finnvera and Ministry for Foreign Affairs, Poland’s BGK, and Czechia’s NRB with ČEB. Together, they deploy roughly €745 million in EU guarantees, €64 million in blended grants, and €8.75 million in technical assistance to mobilise around €1.5 billion in financing for Ukrainian companies. These programmes focus on drones, anti-UAV and electronic-protection systems, navigation, satellite and communications technologies, critical components, and industrial modernisation.

International financial institutions — including the EBRD, EIB, IFC, and European DFIs — remain largely closed to direct financing of dual-use projects. Many apply a threshold of no more than 10% military revenue as a condition of eligibility, a rule the report’s authors consider ill-suited to an active armed conflict.

Policy recommendations

Based on the analysis, KSE Institute sets out a concrete set of measures: channel financing through Ukrainian banks and public programmes already experienced in defence-related operations; revisit restrictive dual-use definitions applied by international institutions; expand concessional working-capital credit — including by converting signed government procurement contracts into bankable assets; maintain grant support for early-stage innovation; and pair every financing instrument with risk-mitigation tools, including war- and political-risk insurance and portfolio guarantees.

This study was prepared with the support of the European Union. The contents of this document are the sole responsibility of the authors and do not necessarily reflect the views of the European Union