Bloomberg: Poland’s growing defence budget faces domestic manufacturing hurdles

Poland's defence budget has skyrocketed in recent years, more than doubling from 2.4% to 4.7% of its GDP by 2025, following Russia's full-scale invasion of Ukraine.

However, according to recent analysis by Bloomberg, much of this increased spending is going to foreign contractors rather than bolstering Poland's own defence industry, raising questions about the country's ability to establish a resilient domestic defence capacity.

The surge in spending was intended to strengthen Poland's defence capabilities, with a focus on modernising its military forces and ensuring that the country could meet its security needs. But despite the financial boost, Poland’s defence industry, which is largely dominated by the state-owned Polska Grupa Zbrojeniowa (PGZ) conglomerate, has struggled to keep pace with the demand for weapons and military supplies. One of the most critical gaps has been in the production of artillery shells, particularly NATO-standard 155mm shells, which are in high demand due to the ongoing conflict in Ukraine.

To meet the needs of both its own military and those of its allies, the European Union has pledged to supply two million 155mm shells in 2025, creating immense pressure on defence industries across the continent. Poland had originally planned to produce 150,000 shells per year by 2025, a target that has since been pushed back to 2028 due to delays in expanding production capacity.

One key issue has been the shortage of gunpowder, a critical component in shell production. Plans to expand production at Mesko, a subsidiary of PGZ, have faced setbacks for years. Two major expansion projects—Project 44.7 and Project 400—have been plagued by delays, changing business plans, and outdated cost estimates, according to a 2023 report by Poland's Supreme Audit Office. The projects, which were supposed to boost the country’s production of gunpowder and artillery shells, have failed to meet their deadlines, with Project 400 now scheduled for completion in 2024, and Project 44.7 not expected to reach full capacity until 2026.

In the meantime, Poland’s reliance on foreign suppliers has grown. For example, PGZ signed a deal with South Korea's Hyundai Rotem to acquire 820 K2 tanks, but the terms of the agreement have yet to be finalised, and production won't begin until 2026 at the earliest. Meanwhile, neighbouring European countries have significantly increased their own defence production. German defence giant Rheinmetall, for instance, has increased its production of large-calibre shells tenfold since 2022, while Poland is still struggling to meet its own production targets, according to defence experts.

The challenges facing Poland’s defence industry are not limited to artillery shells. The country’s ability to produce other essential military equipment, such as missiles and drones, has also been hindered by slow progress in expanding manufacturing capabilities. PGZ's focus on producing exclusively for the Polish military, rather than investing in manufacturing capacity for broader international sales, has limited its ability to compete globally, said Konrad Golota, deputy minister of state assets.

However, there have been some successes in the country’s defence industry. In 2022, PGZ secured a 16 billion zloty ($4.27 billion) contract for 96 Krab howitzers, and PGZ subsidiary Jelcz has been mounting Chunmoo missile launchers onto locally manufactured vehicles in partnership with South Korean contractor Hanwha Aerospace. Additionally, Poland’s largest military drone supplier, WB Electronics, is negotiating a deal with Hanwha Aerospace to manufacture rockets for the Chunmoo artillery in Poland.

Despite these efforts, the Polish government recognises that it cannot rely solely on foreign suppliers. In April 2024, the government proposed a new bill to streamline the permitting process for military infrastructure and manufacturing facilities. The bill is designed to make it easier for Poland to use European Union funds to support its defence industry and expedite the construction of new production lines. One of the key projects outlined in the bill is a new ammunition factory, with an expected completion date of 2028.

While Poland has invested heavily in its defence sector—spending over 150 billion zloty ($35 billion) in 2023—much of that money has been spent abroad, creating pressure to shift more of the country’s defence spending into domestic production.

In 2023, Poland's total defence exports amounted to just €1.74 billion, a relatively small proportion of the country’s total defence expenditure.

As Poland seeks to build a more robust defence industry, both for its own security and for the potential export market, the government faces mounting pressure to ensure that its defence industry is ready to meet future challenges.

By Tamilla Hasanova