How Can Romania Revitalize Its Defense Industry?

Russia’s full-scale invasion of Ukraine has prompted European countries to increase their defense budgets to levels unseen since the Cold War to fill the gap in capabilities from years of low spending and reliance on the United States. Romania could contribute to this effort by revitalizing its defense industry—which has been neglected for many years—from a centralized, export-focused model of licensed or reverse-engineered Soviet-era armored vehicles, small arms, and ammunition to a more fragmented industry adapting to NATO standards and modern technologies.

The country’s National Defense Industry Strategy 2024–2030 is ambitious. Its core objectives are equipping the armed forces to NATO standards and phasing out Soviet-era equipment; promoting technology transfer, modernization, and domestic production; and increasing funding for research and development. The outlook is encouraging with the latest defense budget at $9.84 billion (or 2.24% of GDP), a third of which is for equipment acquisitions.

However, the defense industry is fragmented between Romarm, the largest state-owned conglomerate (with 15 subsidiaries), and other state-owned or partially state-owned companies. By law, the state must have a stake of at least 50% in all defense companies.

The industry also operates in a rather complicated regulatory framework. The National Agency for Public Procurement supervises procurement policy, the Ministry of Defense oversees planning and execution, and the Ministry of Economy controls state defense companies. All contracts over €100 million require parliamentary approval.

International Partners

Since the 1990s, Romania has cultivated closer ties with major foreign defense companies.

Israeli’s Elbit Systems was the first, establishing a joint venture with Aerostar Bacau in 1997 to modernize the Romanian MIG 21 to the LanceR standard. The company has a local branch, Elmet International SRL, that produces avionics and drone technology.

Partnerships with US companies such as General Dynamics, Lockheed Martin, and Raytheon Technologies, led to the establishment in Romania of an F-16 maintenance center, the production of Patriot components, and an assembly and production line of Piranha V armored personnel carriers.

France’s Airbus, Naval Group, and Thales have provided military communication systems, took over and modernized the Ghimbav aircraft components factory, and partnered with Constanta Naval Shipyard. Poland’s PGZ has expressed interest in competing with its Borsuk model in the tender for providing Romania’s new infantry fighting vehicles. In 2024 Germany’s Rheinmetall announced plans for a €47 million munitions factory, supported by the EU’s ammunition production initiative.

Romania has also looked beyond its Western allies. The Turkish company Otokar, after winning a contract for 1,000 Cobra II armored vehicles, has established a local branch, Otokar Land Systems. An ambitious partnership with South Korea’s Hanwha Aerospace, with a contract for 54 K9 Thunder howitzers, will include creating an entirely new production line for armored personnel carriers in the country.

Funding Mechanisms

Romania being able to access various EU and US funding mechanisms has been an important element in establishing these partnerships, and this will be the leading factor in driving further developments. For example, in 2024, it secured a $920 million Foreign Military Financing loan from the United States for the purchase of US defense equipment.

Romania is also taking part in about 20 projects under the EU’s Permanent Structured Cooperation (PESCO), leading two of them. PESCO gives it access to EU-backed collaborative initiatives like the European Patrol Corvette, with support for feasibility and initial project phases. When it comes to the European Peace Facility, Romania has submitted requests for reimbursements for equipment and ammunition transferred to Ukraine.

There are other EU and NATO mechanisms that Romania could tap for facilitating its defense-industrial transformation.

Romania has also participated in the European Defence Fund with relatively modest research and development projects since 2021. With a budget of €8 billion, the fund co-finances multinational research and development, which offers the country opportunities to participate in next-generation European military projects.

There are other EU and NATO mechanisms that Romania could tap for facilitating its defense-industrial transformation. One is the €800 billion ReArm Europe Plan/Readiness 2030 defense framework for coordinating and increasing collective defense investments. This prioritizes “Buy European” defense procurement and more interoperability. Another is the European Investment Bank, which last year expanded its mandate to support dual-use defense projects such as in military mobility. Yet another is the €1 billion NATO Innovation Fund, which invests in dual-use emerging technologies. Romanian startups could access support from it for work in fields like artificial intelligence, cyber, and advanced materials. 

At the same time, challenges undermine Romania’s defense-industrial ambitions. A major issue is the state’s bureaucratic inefficiency, which troubles foreign companies, as was the case in the cancellation of a deal with Naval Group due to delays in signing the contract in 2023. The unclear jurisdiction of the Ministry of Economy and the Ministry of Defense slows down decision-making, and foreign companies often find themselves navigating multiple bureaucratic layers.

High energy costs are another significant disadvantage. Romania’s defense industry remains heavily dependent on outdated technologies that consume substantial energy and increase operational costs. These are a major obstacle to attracting international partnerships as well as to integrating in European supply chains.

Possibly most damaging is Romania’s chronic inability to fully implement its defense spending plans. For example, in 2023, it set a defense budget worth 2.5% of GDP, above the NATO goal of 2% at that time, but in the end it only spent 1.6%, below the NATO average of 1.73%.

Reforms Needed

Romania has to adopt reforms that address these obstacles.

Having the Ministry of Economy and Ministry of Defense both involved in procurement creates confusion that is difficult to navigate. Romania needs to pick one ministry to handle defense acquisition and merge existing agencies with overlapping activities where possible.

Next, as many purchases from and deals with foreign partners as possible should include offset contracts (in which the partner provides economic benefits and/or technology transfer in addition to the equipment) with provisions for local assembly and know-how transfer. The partnership with South Korea’s Hanwha shows what is possible in negotiating for production lines instead of just assembly work.

Cooperation with neighboring allies for joint acquisitions could secure much better terms. Romania should be more proactive in approaching countries such as Bulgaria and Poland for purchases of standardized equipment. This would have the dual benefit of leveraging collective buying power and improving bilateral relations.

Instead of trying to compete across all defense-industrial sectors, Romania should consider specializing in more niche ones where it has a track record and capacity. By focusing on sectors like ammunition production, naval shipbuilding and repair, aircraft maintenance services, cybersecurity, or counter-drone technologies, it could build itself up as a significant European arms producer.

In the years ahead, Romania’s ability to modernize its defense industry will depend less on strategic plans and more on its reaction to address the issues plaguing it. If Bucharest can overcome these barriers, it could help shape Europe’s defense future.