Geopolitics has changed for decades to come. A global division of states into separate camps is underway, coupled with the rise of the defence industry around the world. For Europe and Finland, this transition offers a major opportunity to expand the industrial and technological base. The defence industry and technology is a new growth sector, as the products are suitable for dual use, military and civilian. What remains to be seen is how effectively Europe and Finland will be able to play these new cards. Success depends on the right choices and quick implementation.
Geopolitical transition
The current transition in geopolitics means confrontation. The vision of free and increasingly integrated nations is being challenged by a grouping of authoritarian states which, in turn, have come head-to-head with the new West. The paths of division are varied and only time will tell whether this development will lead to more widespread armed conflicts. A lot of people are also wondering why. Why is integration being replaced by division, and whose interests does this serve? One may engage in all manner of speculation but the answers are hard to find. What we do know is that division serves the interests of the elites of authoritarian states.
Also, global division involves the threat of the use of military force. Authoritarian states challenge the borders, independence and democratic systems of free countries. As a result, both sides are building up their military strength and improving preparedness.
This should not be taken to mean that all is well in the western democracies. However, it is still the best of all systems of government, although there is admittedly plenty of room for improvement. While democratic states are not in the habit of starting wars, the western system is worth defending, and must be defended.
Defence industry as a growth sector
A wide range of new opportunities are available for Europe and Finland in the defence sector. Geopolitical change is a long-term process, and military preparedness and development take a long time. Europe has a number of strong companies engaged in defence technology and production. Moreover, large industrial enterprises are capable of transformation and refocusing on manufacturing defence materiel. At the same time, new growth companies will emerge. A case in point is the NATO accelerator which provides an umbrella for spawning new growth.
EU and the defence industry
The EU is a peace project. Now this project is assuming new forms and the shared concept of the EU is changing. Almost all EU Member States are in NATO, and the EU is seeking to strengthen its defence industry. The European Commission has presented a defence industrial strategy in order to greatly reinforce the European defence industry and joint procurement. Tangible action has already been taken.
Attitudes towards the EU may change from sometimes critical policies advocating national interests into a defence alliance dictated by military necessity, where EU common borrowing may even be looked in new light. Estonia has proposed joint EU debt as part of the EU defence package. Additionally, it is proposed that the European Investment Bank adopts a more active role in financing the defence materiel industry.
Finnish defence industry and technology
Finland possesses a strong industrial base and technological expertise. Finland is also home to large manufacturing and technology corporations and offers favourable conditions for growth companies. All these entities should be able to seize this new opportunity. From time to time, great opportunities open up in the economy. Now one such opportunity is at hand. Finland's credibility in the defence materiel industry and technology is solid. Underlying this credibility are Finland's history, close ties between business and government, extensive stocks of critical supplies, the will to defend the country, defence courses and the long land border with Russia. It’s all living history, not just promises.
Until recently, growth in this sector has been hampered by negative attitudes and reduced production capacity. Now this is changing, the only question is the pace of change. What matters is how quickly orders and investment decisions can be made and new products launched.
Restrictions on investors being lifted
Investor attitudes towards the defence industry changed overnight on 24 February 2022. The reality of the war of aggression launched by Russia prompted pension investors to revise and clarify their approach to the defence industry. A strong pro-industry position is gaining ground, which offers a window of opportunity for companies engaged in this line of business. If the return on investments, profits and expectations are sound, there are no limits for growth in the defence industry. As it is, the remaining restrictions on institutional investors only relate to controversial weapons.
In conclusion
The defence industry and technology is a sector with new growth potential. The question is how to harness this opportunity. We need to lift restrictions, create growth opportunities, generate orders, ensure quick execution and develop new products. It won’t all be easy, but we can accomplish this through the combined efforts of the private and public sector. The new situation offers Europe and Finland an opportunity to put the economy on the growth track by producing dual-use products and technologies.
Writer is VER's CEO Timo Löyttyniemi.
