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Estonia launches investment fund to speed up defence industry growth

The government supported Estonian Prime Minister Kaja Kallas’ proposal to create a defence industry fund to invest directly and through private funds in companies developing defence industry or dual-use technologies. The initial volume of the fund is 50 million euros, which could be increased if successful. 

“In the government, we have decided to create a defence industry fund of 50 million euros, which will strengthen Estonia’s security and help revive the economy,” said Prime Minister Kaja Kallas.

According to Kallas, Estonia has a highly developed technology sector. Unfortunately, there is market failure at the moment, so the technology sector can´t use its capacity to increase national security.

“The state can help here with its seed money. With the fund’s support, Estonian defence industry companies will have the opportunity to develop and bring innovative products to the market. In addition to strengthening Estonia’s security, creating the fund means creating jobs with high added value and the more powerful development of Estonia’s already prominent technology sector,” said Kallas. The fund is planned to be launched in 2024.

The fund supports the Estonian bigger plan

The positive impact of the Defence Industry Fund on the development of the Estonian technology sector and the economy’s growth was also highlighted by the Minister of Economy and Information Technology, Tiit Riisalo. “The fund supports the goal of the economic plan published in March to double the size of the Estonian economy by 2035. New investments are important for developing the defence industry so that companies in the field have support to develop innovative technologies and bring new solutions to the market,” said Riisalo.

“The fund supports the goal of the economic plan published in March to double the size of the Estonian economy by 2035.”
Tiit Riisalo, the Minister of Economy and Information Technology

“To operationally launch the funding, we created an opportunity for the state investment fund SmartCap, creating a new defence industry fund for investment management alongside the already functioning venture capital and green fund. Through the funds, it is also possible to involve private money to develop the initial and advanced technologies of the defence industry,” said Riisalo.

The fund accelerates the development of the Estonian defence industry

“The creation of the defence industry fund is a big and positive step in developing the local defence industry and strengthening Estonia’s defence capabilities,” stated Defence Minister Hanno Pevkur. “The development of the Estonian defence industry can be accelerated with Estonian military aid to Ukraine. Estonian companies already cooperate with Ukraine, and our military assistance to them enables Estonian defence industry companies to create additional opportunities. It is important for us to reach Ukraine with our products, where they are useful today, and we, in turn, can gain valuable battlefield experience from there,” he said.

The Defence Industry Fund starts making direct investments in the equity capital of companies developing defence technologies or dual-use technologies. The fund mainly invests in companies operating in Estonia and does so to the extent necessary to spread excessive risks in order to be attractive to private capital. The Ministry of Economy and Communications is developing the detailed conditions of the fund, the government plans to discuss the conditions in July.

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