Strengthening the Lithuanian defence ecosystem

Problem

“The security architecture that we relied on can no longer be taken for granted”. These were the words of the President of the European Commission Ursula von der Leyen in the White Paper for European Defence and the ReArm Europe Plan/Readiness 2030.  

Since Russia‘s full scale invasion into Ukraine, European defence sector has undergone significant transformations to address emerging security challenges.  

Firstly, European Union (EU) member states have increased their defense spending. According to the European Defence Agency’s report, there has been a 30% rise in total defence expenditure during the 2021-2024 period among EU Member States. With a total of EUR 326B invested into defence this equals to 1.9% of EU GDP.   

Secondly, the European defence industry has experienced significant growth. According to the Aerospace, Security and Defence Industries Association of Europe report,the sector experiences 10.1% year on year growth in turnover. Lastly, European policy makers are putting in place policies and initiatives that would bolster the EU’s defence capabilities, innovation, industrial readiness and self-reliance. Policies such as, European Defence Industrial Strategy and its legislative measure European Defence Industry Programme, ReArm Europe Plan/Readiness 2030 plan, and most recently European Commission’s proposal for EU countries to redirect EU budget funds towards defence readiness.  

Lithuania has also increased its focus on developing its defence sector. Currently, the 2023–2027 development guidelines for the defense and security industry of the Republic of Lithuania constitute a key directive, which stipulates that Lithuania’s defense spending must amount to no less than 2.5% of its gross domestic product, of which at least 20% is allocated to the modernization of the armed forces, including the promotion of innovation in the defense and security industry. Lithuania invested EUR 300.000 in 2024 and is investing EUR 1.000.000 this year into defence innovation by allocating the funds for defence companies to develop new products. Also, Lithuania has established a Venture capital instrument scheme MILInvest worth EUR 13,500,000, which is intended to promote innovation and experimental activities in the field of defense and security, and to invest in the development and production of dual-use (civilian and military) products. The sector’s growth has also been marked by Rheinmetall’s agreement to establish operations in Lithuania, which brings EUR 180M investment and creates additional 150 new jobs. 

Despite the consistent growth of Lithuania’s defense industry, including an increase in FTEs and the number of new companies, the level of cooperation with national military forces and participation in European contracts remains low. According to Innovation agency’s survey overview of the Lithuanian Defense Sector in 2023, only 10% of respondent’s take part in NATO defence contracts and only 40% cooperate with the Lithuanian military. Although national leaders are encouraging greater investment in the defense sector, there is lack of insights into which state support mechanisms could be most effective in fostering the growth of the domestic defense sector. As a result, there may be misalignment between key stakeholders regarding the needs and capabilities of the defense sector, which could pose a significant risk to the effectiveness of planned initiatives. 

Goal

The goal of this project is to identify the key common critical challenges faced by defense companies and to determine which public sector tools in Lithuania have the greatest potential to stimulate a breakthrough in defense manufacturing.

Participants

2024/25

Paulietis Darius Stasiulevičius