With its land-centric and reserves-based defence forces, the small country has opted for cost-effective innovation procurement targeting high-end technologies, applications and services already available in the market, rather than investing in complex and mostly costly long-term research and development programmes. However, to achieve a high level of development and international competitiveness for Estonian defence products, the MoD has invested around EUR 6 million in defence industry R&D over the last decade. This includes support to the Defence Industry Association, a yearly defence innovation competition (since 2013), co-funding for European Defence Fund (EDF) projects, etc.. In addition, the Estonian defence forces and the voluntary Defence League supported the industry in testing and developing their products. Overall, since 2013, the MoD co-funded over 50 national and international projects conducted by the Estonian defence industry. Business diplomacy is also used by the Ministry to support the defence industry to enter new markets and boost exports. Every year, about 50-60% of the Estonian defence investment budget goes to local industry.
Creating the right conditions for industry
The key elements of the Estonian defence innovation policy are reflected in two guiding documents of the Ministry of Defence (MoD): one on research and development (R&D) policy, and one on defence industrial policy.
An updated version of the defence R&D policy (covering the period until 2030) is currently in the process of being adopted, while the defence industrial policy (covering the period of 2013-2022) is also undergoing a review for the next period until 2030. Both these policies operate on a basis of a clear-cut recognition that Estonia’s financial and human resources - both in the defence sector and nation-wide - are very limited and restrict the possibilities in terms of scale and impact of innovation.
Estonia’s defence innovation strategy is therefore predominantly focused on creating the right conditions for the country’s small but very vibrant and technology-minded defence industry to become even more competitive on global markets. It mainly aims at enhancing the home industry’s export potential. This can be explained by two major factors. First, the relatively small size of the Estonian defence market which is simply too restricted for home companies to rely on exclusively. Secondly, the fact that the Estonian MoD does not give out any ‘state guarantees’ to buy national products, which means that national defence producers and their products have to be competitive under normal market conditions. This lack of preferential treatment has not hampered defence innovation in Estonia, on the contrary: the country’s particularly vibrant start-up culture has allowed the country to thrive and even become a leader in areas such as Artificial Intelligence (AI), robotics or cybersecurity.
The Estonian Defense Industry Association (EKTL) leads the implementation of the national defence innovation strategy. Established in 2009, it actively participated in shaping Estonia’s defence industrial landscape which has grown from some individual companies to more than 100 privately-owned local companies offering defence industry products and services. Those range from ships, drones, autonomous unmanned ground vehicles and IT cyber-digital solutions to AI-assisted software, special clothing/footwear, demining equipment, medical equipment, heavy industry products and energy solutions for the Armed Forces, to name only them. Since all Estonian defence producers have to focus on export markets, innovation and competitiveness are crucial.
To support them in that endeavour, the EKTL created in 2012 the ‘Estonian Defence and Security Industry Innovation Cluster’, a specialised network to enhance the ties between Estonian companies, R&D institutions and clients (triple helix) and promote international cooperation and exports. The Cluster and its members promote innovation in the defence and security industry, develop new and highly competitive products/services for export and participate in international projects and programmes. Its declared objective is to increase the export volume of the Estonian defence and security industry tenfold by 2029. The Cluster is also co-financed by the European Regional Development Fund.