The updated coalition agreement, which Eesti 200, the Reform Party and the Social Democratic Party signed in July, dedicates a seven-item chapter to the defense industry. It includes important principles, such as more urgent and larger national defense investments and permanent contracts, which should see the contribution of the defense sector in the economy grow considerably.

The goal we have set for ourselves is a defense industry turnover of a little over a billion euros by 2030. What's even more important, the local defense industry must become a part of Estonia's broad-based national defense capacity.

Prior and especially recent contact with Estonian defense companies in light of the new coalition agreement, which the latter generally and rightly approve of, have highlighted several key expectations, bottlenecks and problems still in need of solving.

The things I will draw attention to next are not criticism aimed at particular people, but rather specific questions we need to answer post haste and likely will in the spirit of cooperation, which I have experienced in the defense industrial complex, the Ministry of Defense and its agencies, as well as among my colleagues.

Working group

To start, it is clear that there are a number of critical problems we need to address first of all, including fixing state finances and introducing economic measures to stimulate economic growth, but the defense industry is also among our priorities.

The final item of the part of the coalition agreement dealing with the defense industry mentions the creation of a defense industry development working group. Naturally, this will not be just another pointless bureaucratic body, but a busy team of everyone involved tasked with achieving the coalition agreement's targets. It needs to be headed by the minister and include members from the executive branch, as well as the defense industry and the legislator.

Without clear and targeted management, nothing will happen (or it will happen hectically, even if it sometimes hits the target), which is why creating the working group amounts to harnessing the horse.

National defense capacity

Secondly, the goal is to make the local defense industry – and more – part of Estonia's broad-based national defense, or the necessary military and civilian capabilities.

While the goal is entirely logical, noble and useful, recent practice, especially as concerns military defense procurements, shows that the current level [of involvement] is not in line with modern needs or the coalition agreement.

Estonian defense companies are usually involved only in the final phase, meaning after public procurements are announced, not during the planning process for capabilities and tenders. They have no practical way of being involved in how they could contribute to manufacturing Estonia's defense capacity in the planning phase. The local defense industry cannot become part of defensive capacity if our own companies are only involved in the procurement phase.

The defense industry is sensitive and special in every state. It has a special status (in terms of exceptions that deviate from general rules) in global trade. Every country with a defense industry tries to support and promote it, which is what we should be doing in Estonia.

Defense tenders

Thirdly, the defense industry claims that there are bottlenecks in defense-oriented public procurements that can and must be removed. Especially in the current critical situation where defense capability developments need to be rapid. Contracts are often (too) short, especially considering complex weapon systems, munitions and other equipment, which are investment-intensive and have a long lifespan. Another aspect to ponder.

Offsets

Fourthly, entering into defense contracts with foreign countries, we should always use the possibility of offsets. I remember problems 20 years ago when a French company X or Swedish firm Y (seemingly) didn't have anything it could procure or anywhere (defensive) it could invest to meet offset conditions.

The whole practice was deemed complicated and pointless in Estonia, but it turns out that Estonia is allegedly the only NATO country not using offsets, even in the case of major foreign procurements. Besides, nowadays, foreign firms have and have had for years plenty of offset opportunities. It simply wasn't and isn't being done, which seems to me more a matter of attitude than want of knowledge.

While offsets run up the price (by 10 percent, shall we say), the benefit to the Estonian economy is likely greater than any relevant damage. Offsets cannot be harmful or impossible, considering the state of the Estonian economy and defense industry. Foreign defense contractors are prepared to participate in offsets, while Estonia still isn't. This must change.

Ukraine

Fifthly, Estonia gives Ukraine military aid worth 0.25 percent of our GDP annually, or roughly to the tune of €100 million. It is not an insignificant sum, and the coalition agreement provides that we are proceeding from both Estonian and Ukrainian defense needs and will use as much of this money as possible to procure things from the Estonian defense industry.

Now, the question is whether we will just sit around and wait for Ukraine to hand us a list of wishes – even though we should know quite well what they need – or whether we will discuss and determine, in cooperation with defense industry participants, what the local industry could do and offer and what would need to be procured from abroad to help Ukraine.

Action is needed post haste, and the aforementioned working group will have to lay down the principle we will follow in the very near future.

State support

Sixthly, matters of support and state investments in defense cluster companies, change of ownership and sustainability.

The coalition agreement reads that cooperation with Ukraine is a good reference point for boosting Estonian defense contractors' export capabilities. Another good reference point is Estonia's support for local companies as a sign of trust. Even when they are still developing and not yet capable of marketing their products or haven't been given the chance. That is why Estonia, when handing out the next €100 million in support, needs to have exact criteria-based calculations for who to support and how much.

Recent cases where some Estonian defense sector companies have gotten new owners who are on relatively good terms with Russia have raised eyebrows. That which is not illegal or prohibited under international sanctions is allowed. However, we need to keep in mind the sensitivity of the field and make sure Estonian state support, whether big or small, does not end up in the wrong hands. We will be making relevant changes to legislation.

Enterprise needs support, and the economy of a country the size of Estonia rests largely on small and medium businesses, but on the global defense market, when we think of export, larger and more sustainable firms emerge victorious. The state cannot dictate to the private sector whether and where to seek consolidation, but Estonia still needs its defense sector to come together around a few flagships.

Whether and how this will happen is another matter and depends on the interests and attitudes of companies and their owners. Estonia has around 150 companies in the defense field, a large part of which are small and potentially unsustainable in the long run. If we grow the defense sector's turnover to a billion euros by 2030, does that mean we'll have 400 to 500 mostly small businesses?

Finally

It looks like we have plenty to think about, decide and do once the necessary preconditions have been met, at least in terms of intentions. Let us shift the Estonian defense industry into overdrive, as it will benefit mostly Estonia, but also Ukraine, which is bravely fighting also in our interests.

This opinion article is not a platform for serving whichever business interests. Supporting the Estonian defense industry is directly tied to Russia's aggression against Ukraine, which necessitates support for Ukraine, but also the need to bolster the Estonian defense sector. It is entirely sensible and necessary to leave as much of Estonian defense investments as possible in Estonia and in companies which produce the necessary items, provide jobs to Estonian people and pay taxes in Estonia.

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