Manufacturing military equipment often requires substantial initial investments, making it challenging for Estonia as a small country to compete with the big hitters in this sector.

The new government's coalition agreement states that boosting defense investments should contribute to the Estonian economy, and the aim is to raise the defense industry's annual revenues to one billion euros, by 2030.

According to preliminary data from the Ministry of Defense, last year the sector's revenue came to a third of that, ie €330 million. In other words the coalition aims to triple the size of Estonia's defense industry sector in the next six years.

Extrapolating from previous years shows this is not pie in the sky, either.

In 2016, the Estonian defense industry's revenues were €56 million, so on average since then, to 2023, there was a growth of 28 percent annually.

However, it is also worth revisiting the fact that the defense industry represents only about 0.9 percent of Estonia's GDP.

Tallinn University of Technology (TalTech) macroeconomics professor Karsten Staehr said of the domestic sector: "If you look at firms producing military equipment, you will come to realize that Estonia's defense industry is very small. You can practically count them on one hand."

The Estonian Defense Industry Association (Eesti kaitsetööstuse liit) boasts over a hundred members, but significantly fewer large companies which directly produce military equipment are represented – something which is typical for a smaller country.

"Initial investments in the defense industry, are very high; you need an established customer base before developing something like a new fighter jet," Staehr went on.

"If you look at the smaller European countries, they often have their own defense industries: Norway has Kongsberg and Sweden has Bofors, but for most smaller countries, it isn't a significant part of the economy."

Larger countries naturally have bigger militaries, which means greater domestic demand and more opportunities to promote their industries abroad. Developing a substantial defense industry is significantly easier for them, as a .

Staehr said: "I don't see how it would be viable to build up a defense industry within a reasonable time-frame."

"This would require massive government support and highly skilled coordination within NATO, primarily to ensure a customer base for the output. Also, there needs to be a skilled workforce present in Estonia capable of producing the goods," he continued.

Estonia itself almost always purchases its military hardware from abroad, yet this is likely to continue even with an enhanced defense industry sector here, Staehr added.

Another consideration is that while in many other countries, larger defense industry firms are state-owned, this would not be very practical in Estonia, Staehr said. "It could be a way to burn a lot of money quickly."

Estonia should in any case focus on areas where the initial investment is not excessively large, he said.

"It would not be very practical to try to build fighter jets. The costs would be vast, and there would be no guarantee of successfully selling anything," he said

One way in might be via the country's already famous IT sector; some of the successful firms in this area have branched out into defense already.

Software development also requires a much smaller initial investment compared with producing heavy military equipment.

Staehr also noted that several other smaller countries have started boosting their production of ammunition, too. This should also be viable in Estonia, albeit not on a very large scale. It should also be coordinated with NATO and neighboring countries to ensure sufficient demand, the professor continued, again noting the scanty domestic demand.

"The amount of money that the Estonian Defense Forces spend on purchasing ammunition is a drop in the ocean compared with the rest of the world," he concluded.

A "miniature" industrial park specializing in defense is to be opened at Ämari Air Base as early as next year, it was announced this week.

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