More defence money, more deals
This conclusion was underscored at the presentation of the latest policy brief from the Latvian Institute for Strategic and Economic Solutions (LaSER), “Moving toward the Baltic Tiger: How to Strengthen Defence Cooperation among the Baltic States.” The brief characterises the Baltic defence industry as young, small, and oriented toward dual-use solutions. Aside from a handful of dedicated military producers, the region lacks heavy industry; the focus instead is on knowledge- and technologyintensive civilian technologies with dual-use potential. A significant role is also played by firms that can pivot production to meet military supply needs when required. While most Baltic defence-sector companies are privately owned, each Baltic state has established state-owned enterprises to manage large-scale defence investments and coordinate development. Because the state, as shareholder, sets these companies’ strategic directions, LaSER argues that closer integration of the Baltic defence industry should start with tighter coordination among these state-owned players.
More Coordination
The imperative to strengthen Baltic defence cooperation stems from a shared perception of threats. Closer cooperation promises not only more effective defence capabilities, but also stronger regional growth. In response to geopolitical shocks, European countries have accelerated defence outlays, forcing their economies to adjust. “Over the past ten years, Latvia’s defence budget has increased substantially”, noted LaSER researcher Roberts Kits. He points out that, as a share of GDP, the Baltic States and Poland are leaders in defence spending. In nominal terms (2024 data), Estonia (€1.3bn), Latvia (€1.4bn), and Lithuania (€2.4bn) together still lag behind countries like the Czech Republic (€6.4bn) and Finland (€6.8bn). Yet by military purchasing-power parity (as per the Peter Robertson methodology), the Baltics are on a par with Finland, though behind the Czech Republic. Kits stresses the need to coordinate and synchronise plans across the Baltics.
Jobs on the rise
Building a stronger defence technological and industrial base (DTIB) creates new jobs. According to the Aerospace, Security and Defence Industries Association of Europe (ASD), employment in Europe’s defence industry is growing – a trend with no signs of reversing. International examples show that targeted development of the defence industry can also lift regional economies.
Defence investments catalyse dual-use innovation and the adaptation of civilian technologies. to military needs, making defence an engine of R&D and technology. They also drive infrastructure upgrades for both civilian and military purposes, while steady capital flows stimulate overall economic growth. The prerequisite for unlocking this potential is a competitive defence industry.
From a global perspective, Europe’s DTIB is highly fragmented, limiting economies of scale, pushing up unit costs, and weakening competitiveness. European systems are comparatively expensive because orders are small – each country tends to favour national suppliers, slowing the scale effects that reduce prices. While consolidation is gathering pace in parts of Europe, coordination among Baltic defence firms remains low, reinforcing fragmentation, small order volumes, higher prices, and lower competitiveness, according to LaSER.
Fragmentation’s silver lining
“There’s a dilemma here: Europe recognises system- and industrylevel fragmentation. From an efficiency standpoint, the U.S. model – without such fragmentation – looks attractive. But that would risk concentrating the entire industry in just a few countries”, explained Latvian Minister of Defence Andris Sprūds. “As minister, I believe we must develop our security industry at home and create work for SMEs.”
Sprūds argues that the Baltic States should complement one another – competition will exist, but the region must fight to be upstream in supply chains. He cited Latvia’s rapid steps after a serious drone incident: “We’re in Phase 1 of finalising acoustic detection for air defence. Lithuania and Estonia do not yet have this, and our neighbours are moving toward our solution. Second, for counter-UAS, we signed four R&D agreements earlier this year on interceptor drones, guided missiles, electronic warfare, and mobile platforms. After the recent incident, Estonia is looking to join these projects – especially as a company from our northern neighbour is already involved in Latvian research.”
Member of the European Parliament Reinis Pozņaks added that while the defence sector is often assumed to be at the cutting edge of science and innovation, civilian tech has outpaced military in many areas – hence the drive to integrate civilian technologies into security solutions. “The defence giants know that new tech and innovation come from small companies; scaling and deployment are where the big firms come in.” He sees strong opportunities for Latvia-based suppliers to enter defence supply chains and grow revenue – with dual-use producers holding the greatest potential, since “the war will end someday.” He cautioned that companies aiming to supply military manufacturers must obtain the relevant certifications.
