During the 2024 High Council meeting, it was emphasized that Latvia needs a clear long-term development strategy that not only ensures national security, but also stimulates economic growth. Can the defense sector foster innovation and become a growth engine? FICIL believes the answer is a resounding Yes!
Given the geopolitical situation, a significant portion of the state budget is allocated to national defense. However, it is crucial to clearly define the long-term development objectives for the defense industry, reflecting a well-thought-through strategic approach. This should promote coordination of efforts and ensure sustainable, targeted and transparent funding. Such an approach would not only strengthen defense capabilities, but also drive economic growth, particularly in the area of innovation and technology.
Examples from other countries show how such an approach can be structured. Estonia, for instance, has established a €100 million defense fund to promote local technology development for defense and dual-use purposes, aiming to double the country’s economy by 2035. Lithuania uses revenues from a bank profit tax to improve military mobility and infrastructure, strengthening NATO capabilities. Meanwhile, the Netherlands has developed a defense industry strategy that enhances national security, boosts knowledge, technology, and industrial capacities, and promotes international cooperation. The Dutch strategy clearly outlines not only the goals and action plans for the industry, but also funding mechanisms for each area, encouraging the involvement of local industries in the supply chains and collaboration between the public and private sectors. These examples demonstrate that the defense industry can also be an economic driver when supported by a well-written strategy and financing.
While Latvia has begun investing in the defense industry, FICIL sees three major challenges with the current approach of the government. First, there is a lack of a clear and ambitious strategy that focuses not only on defense alone but also on economic growth, with measurable progress indicators. Without clearly defined goals, the development of the defense industry becomes chaotic and fragmented. Second, there is a risk of wasting resources, due to a lack of a high-quality strategy for the industry and short-term budget planning. To mitigate this risk, FICIL calls for the creation of a special defense fund, as it is done in other countries, which would operate as a long-term investment fund and not be subject to short-term budget pressures. This fund would accumulate resources over the years, drawing from various sources, thus ensuring sustainable, transparent, and targeted financing for both defense and economic development. Third, communication is vital. The public, businesses and investors need to be informed about government plans in the defense industry, as it would foster a sense of security and highlight business opportunities.
“We should not be afraid to talk about defense issues, as they are crucial not only for local, but also for foreign companies, seeking to make long-term investments in our region,” said FICIL Chairperson Zlata Elksniņa-Zaščirinska in an interview with “Delfi Bizness.”
What would be the benefits of a smart defense strategy and the establishment of a dedicated defense fund? In addition to strengthening defense capabilities and protecting national security interests, it would promote the development of local knowledge, technology, and industrial capabilities, stimulate innovation and economic growth, create new jobs, and offer opportunities for local businesses. Latvia could become a significant player in the international defense market, building reputation as an EU leader in a particular area, for instance, cybersecurity and defense systems in Europe. This would also enhance international cooperation and attract investments from both international funds and the private sector.
In FICIL’s view, Latvia has a great opportunity to build a strong and sustainable defense industry, while fostering economic growth. However, achieving this goal requires clear long-term thinking, decisive action, and close collaboration with society, businesses, and investors. FICIL calls on the government not to miss this opportunity and to reassess its current approach to the defense industry!