Estonian and Latvian defence industry: key takeaways for small states

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DELFI / Tomas Vinickas

Read an overview of the defence industry of Estonia and Latvia, as well as the implemented national measures to promote innovation in the defence sector. Some of the measures would likely be effective in other small states to stimulate the development of the indigenous defence industry.


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

2019, the Estonian Defence Cluster was established, consisting of over 20 participants. The cluster aims to promote innovations in the defence industry to create new, highly competitive products and to increase the export volumes of the Estonian defence industry tenfold by 2029. The cluster makes it possible to strengthen the cooperation between Estonian companies, scientific research and development (R&D) institutions, and customers. The cluster operation is financed by companies (up to 2,000 euros per year), the Association, and the European Regional Development Fund, which has allocated a 0.6 million euro grant.

The cluster is a contact person for the European Defence Fund and national programs, a seeker of partners and finances, and an organizer and participant of thematic seminars and trade fairs. According to the needs of the companies, at least five trainings are organized per year led by international instructors, distance courses are prepared on the most relevant topics, target market research is carried out, and strategies and action plans for entering new markets are created. Cluster participants believe the most promising markets for Estonian companies are the Persian Gulf, the Nordic and Baltic countries, and the US. When a target group of interests creating a specific product or service is formed, the cluster supports it with knowledge, access to innovation and capital, creates a positive image, and seeks to open new markets.

Estonian company “Terramil” produces not only directional, anti-armour mines capable of destroying enemy equipment from a distance of 50 meters, i.e., penetrating 50 mm steel plate, but also anti-personnel and anti-tank mines and various types of explosives.

The Ministry of Defence co-finances part of the projects involving national companies that won EU project calls. In 2021, the volume of co-financing provided by the Ministry of Defence amounted to 0.5 million euros, which allowed national companies to participate in projects valued at 6 million euros.

The Ministry of Defence expresses its expectation to the companies participating in the European Defence Fund tenders. It is expected that at least one company to coordinate the consortium yearly, and the national participants will specialize in 2 to 4 research areas. The national co-financing priorities are determined by taking into account the needs of the Estonian Armed Forces and assessing the benefits in the contexts of R&D and the indigenous defence industry.

Every year, the Ministry of Defence finances national companies seeking to develop innovative solutions in the field of defence. In a typical case, 0.6 million euros are allocated for national R&D activities. The allocated grant can be 25–45 percent of the project’s total value and no more than 0.2 million euros per project.

A tradition is forming in Estonia to present awards yearly, which aim to recognize Estonian and foreign companies that have contributed to Estonia’s national defence.

Since 2014, Estonia has approved R&D policy provisions in the defence field, which foresaw an establishment of the Defence R&D Council, which consists of representatives of the Ministry of Defence, military forces and military training institutions, state universities, and the Association. The Council implements defence R&D policy and promotes national and international cooperation.


More than 100 Latvian defence industry companies belong to the Latvian Security and Defence Industry Federation, founded in 2013. Within the Federation, thematic committees facilitate the interaction of members and the implementation of joint projects. Probably the most famous Latvian defence industry companies – “Bells,” “Edge Autonomy,” “Atlas Aerospace,” “Electronic Communications,” “VR cars,” and “Brasa Defence Systems.”

Throughout 2017–2022, the Federation implemented the Latvian defence and security cluster project, which by 85 per cent was financed by the EU. A digital catalogue of companies was developed during the project, cooperation with research institutions was established, and B2B contacts with foreign companies were established.

The Ministry of Defence, together with the Federation, regularly organizes national days of the defence industry, during which not only developed national solutions are presented, topical topics are presented, legislative changes are presented, and new opportunities in the field of R&D and future arms acquisitions are discussed.

The Ministry of Defence website provides detailed instructions on implementing the US–Latvia Reciprocal Defence Procurement Agreement. This allows Latvian company representatives to understand better the US market and the nuances of entering it.

The Ministry of Defence allocates up to 0.5 million euros annually to finance R&D projects in defence, with 50–75 per cent intensity. Broad topics are defined for the projects, and the evaluation criteria are focused on the product’s novelty and commercialization potential.

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

At the end of this year, the Defence Industry Law will come into force in Latvia, which aims to protect supply chains. The secondary goal of this Law, which was named by Atis Svinkas, the Secretary of the Latvian Ministry of Defence, is to create an ecosystem of local military industry that would be competitive on a regional scale. In the draft Law, great attention is paid to science study programs related to the missing competencies of the defence industry and the need to create testing centres. The Law describes the option of the state’s strategic cooperation with companies (applies to projects with a value exceeding 25 million euros) and provides for the possibility of creating state-owned defence industry companies or acquiring shares of already operating companies. In parallel, the mobilization and national security Laws are being adjusted.

The most famous project of the Latvian military industry is the localization of the production of 6×6 military armoured 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 all vehicles will be produced and completed by 2029, and about 60 million euros will remain for local manufacturers. This project is expected to strengthen the local civil and defence industry and lay a solid foundation for the further growth of the Latvian defence industry. Since Germany joined this project in addition to Finland and Latvia, the production line operating in Cesis will likely produce equipment for foreign customers as well.

What small states can learn?

The examples of Estonia and Latvia show that countries think similarly, with some exceptions, about the need to build indigenous defence industry capacity and R&D. 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 reassess the need to centralize the coordination of defence industry initiatives in the hands of one single institution. In many cases, the county needs more clarity regarding which ministry supervises which programs and how all initiatives are combined in one direction.

The country’s ministries of education and science should be included in the ongoing processes in the field of the defence industry. Preparing specialists with the necessary competence takes time, so these needs must be known in advance; and that is a bare minimum in measures taken by this ministry.

At the coordinating ministry or government level, a functioning forum could allow all ministries, private and legal elements, and the military to interact more closely and share information on defence innovation and industrial development.

It would be appropriate to enable external actors to propose scientific research work in the defence field, which national defence ministries could fund.

The Laws applied in the country’s defence industry field must be moderate to the similar provisions of the neighbouring states.

It would be appropriate to evaluate the provisions of the Law on the Defence Industry of Latvia and their potential relevance – the proposed option of strategic cooperation is an exciting solution to ensure the protection of armament supply chains. Localizing the production and maintenance of “Patria” armoured vehicles in Cesis in Latvia could be a successful state decision.

Comment author. Donatas Palavenis, researcher fellow in the Baltic Institute of Advanced Technology (BPTI).

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