June 26, 2023

Defense Startups Were Treated Coldly Prior to NATO Membership - Can Finland Take Advantage of the New Opportunities


Finland's NATO membership has been a significant decision, increasing security and bringing responsibility while opening up new opportunities for the business sector.

In addition to NATO membership, significant defense procurements have been made in Finland, the effects of which will be seen far into the future. In 2021, the Finnish Defense Forces ordered new F-35 fighters worth 10 billion euros. The deal includes 2-3 billion euros worth of industrial cooperation. In May, the state-owned investment company Tesi announced its participation in NATO's innovation fund with a 35 million euro investment.

Russia's aggression towards Ukraine has rapidly altered the global security landscape and set various wheels in motion, so to speak. Finland joined Nato and Sweden is set to follow soon, money is flowing towards defense procurements, and the development of defense technology, previously viewed negatively, has become not only desirable but necessary.

Now is the time to consider how Finland can offer more innovations to the global defense markets, attract export revenue, and increase its capability to defend against external threats. These innovations do not have to be solely targeted for defense purposes; they can also be dual-use technologies, which serve both civilian and military purposes.

New markets are opening up for Finnish technology

Finland possesses a lot of technological expertise, and within the domain of national defense, the importance of competence is emphasized, as the margin between the best and the second best equates to victory or defeat. In the defense sector, we are ready to invest in competence and quality.

Previously, there has been a somewhat cold attitude in Finland towards the development of defense technology, making it nearly impossible for startups in the sector to secure growth funding. Even innovations designed for civilian use have struggled to access funding if they were suspected of having potential defense applications.

However, despite the challenges, Finnish startups have managed to break into defense procurements. For example, Iceye's satellites have been utilized in Ukraine, and Varjo's smart glasses are used to train fighter pilots. These startups have already demonstrated, even before the shift in the security situation, that their technological solutions are in demand in the global defense market.

Finland needs more similar companies. The growth financing offered by the NATO Innovation Fund must be utilized.

Dual-use and defense technologies must be granted equal treatment alongside other investment opportunities. Moreover, we should forget the negative stigma associated with the military industry.

The industrial cooperation accompanying the F-35 deal should be leveraged to propel the development of new innovations, thus fostering new business opportunities and growth for Finland.

This blog is based on a column that was published on Kauppalehti's website on June 26, 2023

Youssef Zad

Chief Economist