The impact of the war in Ukraine on Polish arms industrial policy

One of the many knock-on impacts of Russia's war against Ukraine has been a surge in demand for military equipment and ammunition in Europe. Poland is one of several Central European countries whose arms industries have seen a marked increase in orders: from their national governments, from European allies buying materiel to give to Ukraine and to replenish their own stockpiles, and from Ukraine itself. Since February 2022, Poland has been among the top suppliers of major armsto Ukraine, not least because it held stocks of Soviet-era equipment that Ukraine's armed forces still relied on in the first months after the invasion. Demand seems likely to remain high as, on top of the orders already placed,many European states have pledged to increase military spending in response to a heightened perceived threat from Russia.

This blog looks at how Poland, which has the biggest domestic arms industry in Central Europe, is using this opportunity to pursue a long-held ambition to modernize its armed forces and grow its arms industry, targeting new markets, diversifying product portfolios and finallymoving beyond its post-Soviet legacy.

The long road to military modernization in Poland

During the cold war, many Central and East European states developed large domestic arms industries to produce Soviet-designed military equipment for the forces of the Warsaw Treaty Organization. The cold war's end sounded the death knell for many of the region's arms producers. Between the mid 1980s and 2000, for example, employment in Poland's arms industry fell by 76 per cent.

Nevertheless, successive Polish governments decided it would be strategic to maintain a domestic arms industry. A series of attempts to revitalize the industry during the 1990s and 2000s met with limited success. Poland's accession to NATO in 1999 was one opportunity, given the Alliance's military spending requirements and common equipment standards. The government tried to ensure that Polish companies were given a role in producing and servicing new NATO-standard equipment that was procured for the Polish Armed Forces. Despite this, the Polish arms industry remained a marginal player on the global stage, often still producing equipment based on Soviet-era designs.

'Polonization'-the participation of Polish partners in the manufacture and delivery of imported weapon systems-has been a key element in Polish military modernization drives and an important criterion in evaluating bids from foreign suppliers. Not only does it provide income for Polish companies, but it also gives them access to new technologies and skills.

The latest Polish military modernization programme was launched in 2020 as part of an updated National Security Strategy, largely in response to a perceived growing threat from Russia. Much like its predecessors, it aims to 'Create conditions for the Polish defence industry . . . to meet long-term needs of the Polish Armed Forces', while 'strengthening operational capabilities of the Polish Armed Forces to deter and defend against security threats, with particular emphasis on enhancing the level of mobility and technical modernisation'. In 2020 it was estimatedthat around 60 per cent of Poland's budget for military procurement and modernization was allocated to the domestic industry.

Russia's invasion of Ukraine in February 2022 provided new impetus and a month later the government passed the Homeland Defence Actto reorganize its national defence policy and increase military expenditure to 3 per cent of gross domestic product (GDP) in 2023. In January 2023 Prime Minister Mateusz Morawiecki announced that the course of the war in Ukraine meant Poland needed to 'arm ourselves even faster' and pushed the military spending target up to 4 per cent of GDP. Once again, the domestic arms industry was to play an important role in-and be a key beneficiary of-the military modernization plans.

Key 'Polonized' procurement deals since the start of the war

During 2022 the estimated share of Polish military spending dedicated to procurement jumped from 20.4to 35.9per cent, largely due to a flurry of new bilateral arms procurement deals. The state-owned arms industry group Polska Grupa Zbrojeniowa (PGZ), which has been the biggest actor in the Polish arms industry since a consolidation programme in 2014,has been the main beneficiary of the Polonization requirements built into these deals.

In March 2022 Poland selectedthe United Kingdom's Babcock as a partner to support a consortium led by PGZ in delivering new frigates to the Polish Navy. The ships will be built in Poland and Babcock will providedesign specifications and transfer technologies and skills to the consortium members.

Six months later, Poland signeda deal with Korea Aerospace Industries for FA-50 light attack aircraft, which will replace Poland's Soviet-designed MiG-29s and Su-22s. The deal is worth $3 billion and includes setting up a service facility for the new aircraft, which is to be operated by PGZ.

In November another contract was signed, worth $5.7 billion, for the supply of South Korean K2 main battle tanks and K9 self-propelled howitzersfor the Polish Armed Forces. Some are to come from existing stock while others are to be produced by South Korean-Polish consortiums. In the same month, PGZ also signed an agreementwith BAE Systems for the delivery of M88 armed recovery vehicles and armoured multi-purpose vehicles to the Polish Armed Forces.

In February 2023 the Polish government placed an order with PGZ subsidiary Huta Stalowa Wola for 1400 Borsuk infantry fighting vehicles. The Borsuk is a new model developed to replace the Soviet-era BMP-1 and is to be produced in Polandbased on a Korean chassis.

In March South Korean producer Hyundai Rotem signed a consortium agreementwith PGZ for the production of K2s in Poland. PGZ subsidiaries will also cooperate with the South Korean Hanwha Group to produce the K9s as well as K239 Chunmoo multiple-rocket launchers, which are to be integrated with trucksand other technologiesproduced in Poland under a $3.55 billioncontract signed in November 2022. Hanwha has said it plans to increase its presencein Poland and work with local companies to develop and build a variety of military systems.

In April, in what has been hailedas the 'largest European short-range air defence acquisition programme in NATO', the trans-European arms producer MBDA won a $2.4 billion contract to provide Poland with missiles and missile launchers to be integrated with the PGZ-produced Pilica+ air defence system. The two companies 'continue to work towards contracting the technology transfer and Polish manufacture of the mid-tier . . . air defence programme'.

Last month, Poland expressed interest in joiningSouth Korea's 4.5-generation KF-21 Boramae combat aircraft programme. If the partnership is given the green light, it would mean an upgrade to Poland's air force capabilities, and PGZ would once again be involved in the industrial process.

Opportunities and risks

There is little doubt that the war in Ukraine has caused ripple effects across the arms industries in the whole of Europe.While for Poland helping Ukraine is a matter of national and regional security, the war is also catalysing steps to upgrade and modernize its arms industry. Poland sees an unprecedented opportunity to finally achieve its ambitions and become a more significant player in the global arms industry.

The pre-1989 origins of the Polish arms industry have strongly influenced its recent fortunes, particularly in terms of products and customers. Since the end of the cold war, Poland has been trying to distance its arms industry from its Soviet legacy, for military, political and commercial reasons. However, one modernization and investment programme after another has been delayed, abandoned or simply fallen short of ambitions.

While Poland is still a major importer of major arms, its approach has been to balance off-the-shelf imports to fulfil immediate needs with Polonization deals to develop domestic production capacity for the long term. Modernization and Polonization seem to currently be in full swing: contracts with major foreign companies positively impact the visibility and attractiveness of the Polish domestic arms industry, creating a self-reinforcing cycle. Coupled with increased Polish military spendingand the most recent spending pledges, the current demand means the Polish arms industry's prospects seem good for the next few years.

However, basing ambitious long-term investment and modernization plans on the response to temporary, largely external events is something of a gamble. Several factors could change the prospects for Poland's arms industry, such as a shift in governments' spending priorities or new European policies on arms industry integration. If something like that were to happen, Poland's ambitions for its arms industry could once again be undermined.

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