In recent years, Estonia’s defence industry has experienced significant growth, driven by the geopolitical climate and technological advancements. However, companies face challenges, such as a lack of domestic references and difficulties securing funding. According to Ingvar Pärnamäe, CEO of Estonian defence company Vegvisir, collaboration between the state and the defence industry could help Estonian companies achieve a turnover of one billion euros by 2030.

The ongoing conventional war in Ukraine has prompted military forces worldwide to consider the technologies needed for future conflicts and what preparations are necessary for national defence, Pärnamäe points out.

As a result, Estonian defence industry companies, including Vegvisir, have advanced rapidly over the past two years. According to Pärnamäe, 2023 was a pivotal year for the company. “We successfully developed two products, Vegvisir Core and Vegvisir Remote, and acquired our first paying client,” he says. “In 2024, we are focused on larger-scale sales and are currently on track.”

Pärnamäe notes that the war in Ukraine has significantly impacted the local defence industry, increasing the demand for protective systems for armoured vehicles and unmanned platforms. “Armoured vehicles have regained importance on the battlefield, but their protection needs to be more effective, for example, against FPV drones,” he explains. Additionally, rapid development is taking place in land robotics, where Vegvisir’s visual technology holds substantial potential for remotely manoeuvring and controlling these machines in challenging terrain.

References and funding are the biggest challenges

Success in Estonia’s defence industry does not come quickly. Pärnamäe identifies the most significant challenge as the lack of domestic reference clients. “If the Estonian Defence Forces don’t use our products, it is harder to sell them elsewhere,” he explains. A potential solution could be closer cooperation with the Estonian government, which could support the testing and development of defence products.

Another critical challenge is securing funding. “We are closing an investment round where we raised three million euros, but finding funding remains difficult. The European Investment Bank’s restrictions on investing in the defence industry, particularly, are problematic,” Pärnamäe says. He notes that investor confidence in defence sector investments remains lower than current market demand would suggest.

Pärnamäe hopes the Estonian government will adopt a more strategic approach to supporting the defence industry, including direct investment into companies.

The one-billion euro revenue target

The war in Ukraine is an apparent factor driving up defence spending globally. “The war in Ukraine, tensions in the Middle East, and uncertainty surrounding the upcoming US presidential election contributed to a tense environment. This, in turn, increases defence spending and the demand for defence industry products,” says Pärnamäe.

He believes that one way to accelerate the growth of Estonia’s defence industry is to channel military aid to Ukraine through Estonian companies. “Instead of purchasing armaments from foreign countries, taxpayer money could stay within Estonia by buying products from local companies,” Pärnamäe suggests. This would bring money back into the Estonian economy and help boost the turnover of local enterprises.

The Estonian defence industry aims to reach a one-billion-euro turnover by 2030. According to Pärnamäe, this goal does not necessarily require a breakthrough but increased export volume of existing products. “The more diverse the products and clients, the greater the potential for sales,” he explains.

However, Pärnamäe stresses that closer cooperation with the state is essential. He highlights the possibility of implementing offset requirements in defence procurement contracts, where foreign companies would be required to purchase Estonian defence products and services as part of their contracts. “This could help balance rising defence costs, assist in boosting the turnover of Estonia’s defence industry, and keep taxpayer money within the country,” he explains.

Political support can be pivotal in reaching sales

In Pärnamäe’s view, state support and close cooperation with Estonian defence companies are crucial when looking for new clients. Political support can be pivotal in reaching sales faster and with greater certainty.

He also sees the Estonian Defence Forces as a valuable development partner whose input in validating ideas and conducting actual field tests can significantly accelerate the completion of certain products. “The new coalition agreement gives us hope in several areas, which could improve the prospects for Estonia’s defence industry,” believes Pärnamäe.

Although Estonia’s defence industry is small in scale, its innovation level is high. “Our advantage lies in innovative, smart, and unique solutions that could be the best in the world within their niche,” says Pärnamäe. The country’s strong start-up ecosystem and rapid product development capability also contribute to the success of companies.

“Estonian defence companies are bold and globally-minded, which is not always common in many other countries,” Pärnamäe notes, adding that this mindset enables success on international markets.

The growth and development of Estonia’s defence industry largely depend on state support and international relations. Cooperation between the government and companies is essential for achieving a one-billion-euro turnover by 2030 and increasing exports. According to Pärnamäe, the Estonian government should consider directing military aid through Ukraine and implementing offset requirements in defence procurement, strengthening Estonia’s defence industry and opening doors to larger markets.

“The more strategic bilateral cooperation that the Estonian state can build with our allies, the greater the likelihood that we will reach that billion and potentially even sooner than 2030,” adds Vegvisir’s CEO Ingvar Pärnamäe.

GOOD TO KNOW

• Vegvisir is developing a mixed reality situational awareness solution that enables, for example, an armoured vehicle operator to see a 360-degree view through the vehicle’s metal shell via virtual reality goggles.
• In 2023, the company had seven employees; by the last quarter of 2024, this had increased to 11.
• In January, Vegvisir signed a partnership agreement with Indian defence company MKU Limited, opening the Indian defence market for Vegvisir.
• In September, Vegvisir entered into a contract with the Australian Army, selling its technology to an end-user for the first time.
• Over its operational years, Vegvisir has raised 3.6 million euros.

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