Opinion: The Nordics and Baltics Need a Strategy for Defence Technologies
Have you ever switched on Tesla’s autopilot in the snow or had a roadtrip in minus 20 degrees celsius? If you have, then you know how badly even the best imported technologies may work in the Nordics. The exact same applies to emerging defence tech not developed for the Nordic and Baltic conditions.
On the same day the Hamas-Israeli war started, the sovereignty of the Nordic and Baltic subsea infrastructures were breached by a foreign power as a gas pipe and a data cable on the bottom of the Gulf of Finland were sabotaged. Above them sails more than half of Russia’s oil exports.
This puts the Nordic and Baltic countries in a situation not seen since WWII. While the identity of the sabotageur, or sabotageurs, hasn’t been confirmed, one thing is clear. The countries need to independently start building on a regional defence technology strategy.
Supranational Defence Funds
The outbreak of the Russo-Ukrainian war forced both Finland and Sweden to apply for NATO membership. In the case of Finland, the country quickly upped its defence tech push by joining the newly-established $1 billion NATO Innovation Fund in May.
But the fund isn’t living up to the dual-use expectations that were set during the NATO Summit in Madrid last year, resulting in France, the only EU country to have nuclear weapons, opting out. This has given the UK an outsized role in NIF, which under Lakestar founder Klaus Hommels’ guidance has turned its focus towards investing in more mainstream deep tech together with traditional venture capital funds.
This is a problem for Finland and other countries who invested in the fund on the assumption that it would help birth regional defence tech capabilities. As NIF may to the most in need look to be somewhat of a half-measure, it is a lesson for the Nordics and Baltics about the need to be more independently organised when it comes to participating in and building emerging defence tech.
Since 2018, the UK has tackled the question by establishing a special fund for defence tech, the National Security Strategic Investment Fund, a fund modeled in close cooperation with In-Q-Tel, the original CIA-founded defence technology fund. It was this fund that siphoned UK’s investment into NIF, whose managing partner has an earlier relationship with NSSIF.
While NIF is turning towards deep tech, the planned Defence Equity Facility under the $8 billion European Defence Fund is looking to have the potential of becoming the de-facto European defence tech ecosystem builder. France is participating in EDF, but post-Brexit UK isn’t.
Successful Defence Tech Participation
In contrast to the UK, Finland made its NIF investment through a multipurpose state investment vehicle that also invests in consumer VC funds, among whose main themes are green transition and ESG. Estonia did the same, while Norway for its part is debating whether a separate defence tech fund could be funded by the country’s $1.3 trillion Oil Fund, which currently prohibits investments in military products.
Building local defence tech capability trough an organisation suspicious to defence may turn out to be an uphill struggle. A successful defence tech policy requires shared agency.
Having recently returned from the inaugural European Defense Tech Summit in Madrid as the sole Finnish representative, we have come to realise that the key to a successful regional defence tech strategy requires proactive participation with all interests , also directly with the US as all of the Nordics and Baltics will soon be NATO members, and the acceptance that the industry is more opaque than traditional consumer technology. Trust, the right contacts and specific sector understanding will become more important as it is shared between fewer participants. Local venture investors need to adapt to this to successfully bridge the technology deficit gap between army officials and political decisionmakers.
It is without doubt that the Nordic and Baltic countries have the entrepreneurial resources needed to build meaningful defence tech. Today, more than 1,500 Ukrainian drones are taken down each month by the Russian army, a defence category where Finland has strong participation. And probably more importantly, Daniel Ek’s Prima Materia and Sweden’s Saab are both early investors in Helsing, a German defence tech startup which aims to upgrade Europe’s existing defence equipment with modern capabilities.
The Region as a Key Resource Provider
The Nordics is a key infrastructure provider for the west, with Finland and Sweden controlling more than half of the world’s radio access networks that allow mobile phones and computers access the internet. Norway accounts for half of Europe’s oil production while more than half of Russia’s trade of goods travels past the Nordic and Baltic coastlines, increasingly through the Northeast Passage, a route also attracting Chinese interest.
While these resources are strategic to both the US and Europe, the ultimate responsibility of defending them remains with the countries themselves. With the dicothomies of France and the UK when it comes to funding Europe’s emerging defence tech, the Nordics and the Baltics have to be comfortable to manoeuvre all outcomes. The currency for it will be the resources above, as well as the region’s high internal ability to build world-class technologies.
Since the onset of the war in Ukraine it has become clear that countries closer to conflicts feel more urgently about defence. Controlling more than half of NATO’s border towards Russia, Finland is no exception. The sense of urgency when it comes to defence is much more subdued in Madrid than what it is in Helsinki. Other countries sharing a border with Russia are Norway, Estonia and Latvia. Lithuania is probably most alert to Russian aggression, sharing a border with the so-called Suwalki Gap leading to the Russian exclave of Kaliningrad.
Molotov Cocktails and Punch Bowls
The uncanny fact about today’s kinetic warfare is that the cost of war is greater for the defender than the attacker. Building missiles that intercept incoming attacks is expensive. The intercepting missiles of Israel’s Iron Dome cost 100 times more than the ones launched by Hamas. This is not sustainable. The west needs to find more cost-effective means to defend their democracies.
In the opening stages of WWII, when Russia first invaded Finland during the Winter War, Finland was forced to fight without outside support. To match the overwhelming power - Russia deployed 150 times more tanks and 35 times more aircrafts - Finland was forced to resort to cunning. The defenders perfected the petrol bomb to the extent that it helped stop one third of the more than 2,000 Russian tanks that Finland destroyed during the three months of the war. In today’s money, a tank costs a million times more than a Molotov cocktail, which the Finns named after Soviet foreign minister Vyacheslav Molotov.
But as always, from despair comes hope. In 1940, following the experience of the Winter War, Finland developed a mortar for its challenging winter conditions. This launcher was so reliable and accurate that it became a global benchmark spawning derivatives that are still used today. Produced later by Israel’s Soltam Systems, founded by Shlomo Zabludowicz who survived Auschwitz to Finland, the mortar was a key Israeli asset in the Yom Kippur War of 1973.
With this legacy of underdog cunning, Saab’s increasing lineup of traditional defence hardware, Norway’s subsea prowess and Baltic tech, the region may grow to play as outsized a role in the defence technology space as what it currently plays in the global market for internet connection. But it needs to start building defence tech strategy with an independent mind, create a pool of local investing operators who understand the new defence tech market and who also have the ability to bridge the transatlantic gap.
The challenge for a Nordic and Baltic defence tech strategy is that it needs to cater both to the new technological military-industrial complex of NATO and the independent needs bogged down by insufficient means.
Expect to see more special-purpose defence venturing vehicles in the style of NSSIF as the Punch Bowl is slowly being removed. And this may be for the good as in today’s European collective, hard defence funding flows are losing out to deep tech, where dual-use outcomes are hopeful at best.
By Jonas Dromberg, founder and principal at Revalence Ventures.
