Estonian and Latvian defense industry and innovation: key takeaways for small states

Estonia

Over 130 Estonia’s defense industry companies are united by one – the Estonian Defense and Aviation Industry Association, which was founded in 2009. The specialization of the companies is very different, and perhaps the most famous company is “Milrem,” which produces autonomous ground platforms and plans to develop a light tank.

The Ministry of Defense (MoD) co-finances part of the projects involving national companies that won EU project calls. In 2021, MoD's co-financing volume amounted to 0.5 million euros, allowing national companies to participate in EU projects valued at 6 million euros.

MoD expects at least one company to coordinate the consortium yearly, and the national participants would specialize in 2 to 4 research areas in the European Defense Fund projects. The national co-financing priorities are determined by considering the needs of the Estonian Armed Forces and benefits for the R&D community and indigenous defense industry.

Every year, MoD finances national companies up to 0.6 million euros, seeking to develop innovative solutions. The allocated grant can be 25–45 percent of the project’s total value and no more than 0.2 million euros per project.

Since 2014, Estonia has approved R&D policy provisions, which foresaw an establishment of the Defense R&D Council, which consists of representatives of MoD, military forces and training institutions, state universities, and Association.

Latvia

More than 100 Latvian defense industry companies belong to the Latvian Security and Defense Industry Federation, founded in 2013. Probably the most famous Latvian defense industry companies – “Bells,” “Edge Autonomy,” “Atlas Aerospace,” “Electronic Communications,” “VR cars,” and “Brasa Defense Systems.”

MoD and the Federation regularly organize national days of the defense industry, where developed national solutions and legislative changes are presented. New opportunities in the field of R&D and future arms acquisitions are discussed.

MoD allocates up to 0.5 million euros annually to finance R&D projects in defense, with 50–75 percent intensity. Evaluation criteria are focused on the product's novelty and commercialization potential.

An agreement is concluded between the Latvian Academy of Sciences and MoD on the conduct of scientific research and the use of experts in thematic assessments.

At the end of this year, the Defense Industry Law will come into force in Latvia, which aims to protect supply chains and create a competitive defense industry. In the draft Law, great attention is paid to the synchronization of study programs and the creation of testing centers. The Law describes the option of the state's strategic cooperation with companies (for projects above 25 million euros), creating a state-owned defense industry and acquiring shares of already established companies.

The most famous project is the local production of 6x6 military armored personnel carriers “Patria” in Cesis. Latvia, with a Finnish company in 2021, signed a long-term contract to purchase 200 units of transporters for 200 million euros. It is planned that vehicles will be produced by 2029, and about 60 million euros will remain locally.

What small states can learn?

Estonian and Latvian cases show that countries think similarly about the need to develop an indigenous defense industry. The experience of innovation promotion and interoperability could be best obtained from Estonia and the development of manufacturing capacities from Latvia.

Decision-makers of small states are encouraged to centralize the coordination of defense industry initiatives through the hands of one single institution.

The country’s ministries of education and science should be included in the ongoing processes in the field of defense industry.

At the level of ministry or government, a functioning forum could allow to interact more closely among stakeholders and share information on defense innovation.

It would be appropriate to enable external actors to propose scientific research in the defense field for national MoDs.

The proposed option, by the Law on the Defense Industry of Latvia, of strategic cooperation is an exciting solution to ensure the protection of arms supply chains. Localizing the production and maintenance of “Patria” armored vehicles in Cesis in Latvia could be a successful state decision.