Inside Estonia’s Defense-Tech Ecosystem
By Joel Burke - Estonia offers a unique look into how a whole-of-nation approach can be developed to counter foreign adversaries now and in the future.
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.
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 creating the NATO Cooperative Cyber Defence Centre of Excellence (CCDCOE) in Tallinn.
Estonia’s government has a longstanding strategy of building up the cyber sector, which is seen as an environment in which Estonia 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. First and foremost, the success of Estonia’s defense-tech ecosystem depends on collaboration and communication between the public and private sectors.
Estonia’s Secret Sauce: Public-Private Sector Collaboration & Communication
While Estonia has many geographic disadvantages, one advantage it does have is a tightly-knit community aligned around the shared goal of safeguarding its democracy and culture. This manifests in rich collaboration and communication between the public and private sectors. There are tight feedback loops between groups, which is critical when warfare innovations and adaptations mean that products and strategies must be modified in days and weeks instead of months and years. There are also robust channels for the sharing of expertise and the reduction of bureaucracy.
Indeed, it is not unusual for a member of parliament or even the prime minister to be accessible by email, text, or LinkedIn to many entrepreneurs and investors in the country. Bureaucratic inertia can therefore be quickly overcome, and decisions made much more rapidly. As detailed above, the Estonian government is an ardent supporter of the tech ecosystem, providing funding and incentives and clearing roadblocks to facilitate its development. But importantly, this street goes in both directions.
Since 1918, the country has depended on volunteers to augment permanent forces through the Estonian Defence League (EDL), and since 2008 this volunteer force has expanded to the cyber realm through the formation of a unit of cyber volunteers. This formalized cyber-defense support from the private sector that had already existed during critical periods like the ‘07 cyberattack. Today, the cyber forces in the EDL serve as a vital force multiplier for the country and share advances with the government gleaned from working at the bleeding edge in the private sector. This has created a virtuous cycle as volunteers leverage their expertise and knowledge of defense-sector needs into the development of private-sector startups solving real problems for the national security community.
Defense The Estonian Way
With only 1.3 million people and a GDP of around $38 billion, Estonia lacks the resources to counter an adversary like Russia through traditional means. It must instead focus on asymmetric tactics. A core way Estonia has done this is through the development of dual-use technologies as fiduciary constraints have forced government officials and would-be defense entrepreneurs to look for market solutions that could become commercially viable without significant government support. Even programs like NATO’s DIANA accelerator, a new startup accelerator meant to quickly develop critical technologies for NATO’s defense, are focused on dual-use technologies.
Estonia’s support for dual-use technologies has deep roots. Most notably, the country’s e-government services were mostly developed by the local private sector instead of the government in the hopes that it would seed the development of a knowledge economy and ICT sector that could then expand globally. The strategy paid off handsomely with e-government implementations by Estonian companies in countries as diverse as Benin and Japan. And for Estonia, building links to other governments and critical commercial sectors is a key strategy to foster deeper ties around the world in case the country needs help from allies one day.
For Estonia, every firm can serve as a dual-use venture that helps to promote domestic security, even if it builds batteries instead of bombs.
A crucial sector in which Estonia excels is the green economy. Long a European Union priority, Estonia has also focused on supporting green initiatives through programs like Accelerate Estonia. The private sector is intimately involved in the push to develop green technologies. For example, Skeleton Technologies, whose founder Taavi Mubarak is also a co-founder of Frankenburg Technologies, has raised more than three hundred million euros for its energy solutions product line. The company produces its raw material, Curved Graphene, using EU supply chains rather than depending on China like many others in the energy sector. Estonia is also home to a Neo Performance Materials facility, which is “the only industrial-scale and commercially operating midstream (i.e. separations) facility of rare earth elements outside of Asia.” The company is investing in developing a local permanent magnet factory for electric vehicles and wind turbines. For Estonia, every firm can serve as a dual-use venture that helps to promote domestic security, even if it builds batteries instead of bombs.
Conclusion
Every country is unique. Estonia’s geography and history have helped cement a consensus in the population that combating Russia is urgent and necessary. Consequently, government officials are clearing regulatory roadblocks and providing support, entrepreneurs and investors are developing new technologies and everyday citizens are volunteering to support the country (and in many cases sending money and supplies to Ukraine through initiatives like Adopt a Drone). While the country’s pathway to developing a vibrant and rapidly growing defense-tech sector is not universal, it still has much to teach the West.
Key Lessons:
Communication is Critical: By making communication with senior leaders in the private and public sectors accessible, feedback loops are tightened, and innovation is accelerated.
Know Your Users’ Needs: In Estonia, the population is broadly focused on the war in Ukraine and defending against the threat of an expansionist Russia. Relations between the entrepreneurs, government officials, and everyday citizens in both countries are close, leading to the development of strong links between customers and defense tech creators, further tightening the development cycle through a better understanding of local needs.
Understand Your Asymmetric Advantage: Estonia is a country of innovators, and the nation has leveraged its entrepreneurs and investors to create an asymmetric advantage through the development of dual-use technologies and capabilities such as those in the cyber realm which allowed the country to strengthen its collective defense while growing its economy.
Leverage Existing Networks & Stakeholders: When the NATO DIANA accelerator expanded to Estonia, it didn’t create an entirely new structure. Instead, it leveraged the existing Tehnopol infrastructure and network, helping ramp up operations faster and immediately integrating the accelerator into the local community.
Public-Private Collaboration is Critical: Estonia’s use of volunteer cyber actors shows the potential for public-private collaboration in solving pressing challenges.
Joel Burke is a research fellow at fp21 and is the author of the forthcoming book Rebooting a Nation, which examines how Estonia became a globally known tech and e-government leader in the decades following re-independence.