Inside Estonia’s Defense-Tech Ecosystem

This article is based principally on a report authored by Joel Burke and published by the National Defense Industry Association’s Emerging Technologies Institute in September 2024 titled, Inside Estonia: How the EU’s E-State Thinks About Defense Tech . For Estonia, geography has long been destiny. The country’s proximity to various empires, many of which occupied its territory over centuries, has become a defining element of its history and culture. Today, concerns related to its border with a revanchist Russia are one of the defining features of the conversations and actions of not just those in the defense sector, but entrepreneurs, investors, and everyday citizens. Thanks to Russia’s war against Ukraine, fears of a potential Russian invasion have skyrocketed. Many in Estonia see the fight as existential not only for the Ukrainian people but also for those in countries that were previously subjugated under the yoke of Russian imperialism. However, the war in Ukraine has also brought a remarkable sense of solidarity to the country. Today, the nation is largely united in preparing for the threat of Russian aggression, with everyone playing a role. Estonia offers a unique look into how a whole-of-nation approach can be developed to counter foreign adversaries and a future defense industry in a conflict-ridden world increasingly dominated by cyber, hybrid and grey zone tactics, dual-use technologies, and AI. But while the local defense-tech ecosystem is evolving extraordinarily rapidly, it is important to examine the current status quo to understand what has allowed the country to become a defense hub so quickly. State of Play: Estonia’s Defense Environment Estonia is home to a burgeoning defense-tech ecosystem with established companies like Milrem Robotics — whose unmanned ground robots became so infamous on the Ukrainian battlefield that Russia put out a bounty in a desperate attempt to get their hands on one — and Baltic Workboats, which is leading the development of a semi-autonomous warship platform for EU naval forces. Just as important as these relatively established defense-tech firms, Estonia is home to one of the most dynamic early-stage defense ecosystems in the world outside of Ukraine. Startups like Frankenburg Technologies, which plans to produce anti-drone missile systems in Ukraine, have popped up with significant fanfare. According to the CEO of the Defense Industry Association, which represents a large swath of the Estonian defense sector, total member turnover stood at €330 million in 2023 and forecasts that by 2030 their members will reach €1 billion in turnover. The rapid growth of the Estonian defense-tech ecosystem is not just due to the activities of the private sector — namely, many prominent entrepreneurs and investors in tech companies like Skype, Skeleton Technologies, and Bolt, who have increasingly turned their focus to Estonia and Ukraine’s defense — it is also due to the active support of the Estonian government. While Estonia has long met (and often exceeded) its expectations for collective defense within the NATO framework, the country has also gone above and beyond in its support for Ukraine and strengthening its domestic defense capacity. According to Dr. Justina Budginaite-Froehly’s article “The Baltic (R)evolution in Military Affairs,” all of the Baltic states are working to increase their self-sufficiency of critical materiel production and are adjusting their legislative frameworks to facilitate the development of the sector, with Estonia “planning several amendments to its Defense Industry Law to reduce unnecessary restrictions.” The Estonian government has also provided nontrivial financial support to the defense-tech sector, with then-Prime Minister Kaja Kallas greenlighting the launch of a 50 million euro defense industry fund in early 2024 to support local startups and Prime Minister Kristen Michal announcing additional funding to invest in lethal technologies in September 2024. Additionally, along with Latvia and Lithuania, the country plans to create a common defense zone that will contain hundreds of bunkers. Estonia’s government has a longstanding strategy of building up the cyber sector, which is seen as an environment in which Estonia both excels and could provide significant value to other NATO countries. In 2007, Estonia was hit with what may have been the first state-backed cyberattack on another sovereign nation targeting government and private-sector critical infrastructure. That attack helped catalyze support for the creation of the NATO Cooperative Cyber Defence Centre of Excellence (CCDCOE) in Tallinn, which has become a leading hub for the development of cybersecurity doctrine, as well as a training ground for cyber skills in NATO and nations like Japan and Ukraine. The government's fingerprints are also found in the private sector. Cybernetica, which works with the likes of the US Office of Naval Research Global and is one of the nation’s leading cyber firms, was originally part of the Tallinn-based Institute of Cybernetics before being spun out into a private company that helped build key foundational elements of the country’s e-government platform. Estonia’s focus on cyber has also served as an entry point into the AI ecosystem. Tomas Jermalavičius of Estonia’s ICDS says in a 2024 report that “cybersecurity is viewed as a pivotal element of future secure, safe, and trustworthy AI systems, allowing Estonian companies to leverage their competitive advantages and competence in larger projects led by their Allies.” Estonia’s rise from a top startup ecosystem to a bastion of cyber excellence and a leader in e-government is notable, but, rapid development as a defense-tech hub may end up being the most important development in the nation’s recent history. Understanding how the country has become a leader so quickly is critical for those in the West who seek to emulate Estonia’s defense-tech ecosystem development and break out of decades of defense industry deterioration.