Situated on the eastern border of NATO, Lithuania faces the possibility that Russia will attempt to seize the Suwalki Corridor, an area of southern Lithuania that separates Belarus and the Russian enclave in Kaliningrad.
Lithuania is a small state. It has a population of 2.8 million, a land area of 25,200 square miles (slightly larger than West Virginia), and a gross domestic product of just over $78 billion. Yet it has big security challenges. Situated on the eastern border of NATO, Lithuania faces the possibility that Russia will attempt to seize the Suwalki Corridor, an area of southern Lithuania that separates Belarus and the Russian enclave in Kaliningrad. Such an action would deny NATO land routes from the rest of the alliance to the three Baltic states. Other threats from Russia include attacks in cyberspace, psychological warfare, propaganda, covert actions by the active Russian intelligence services, and the coercive employment of economic instruments. With the aid of Belarus, Russia has even weaponized migrants. In short, Lithuania must be able to respond to an array of Russian threats to destabilize the region.
In response, since 2014, Lithuania has increased defense spending from 0.88% to 2.76% of GDP, with spending this year of about $2.1 billion. The public naturally wants as much of this substantial sum to be spent at home as possible. Already, about 70% of the Ministry of Defense budget remains within Lithuania in the form of salaries, services, and the construction and maintenance of facilities like barracks and motor pools. Yet most major arms and technology acquisition programs are off-the-shelf foreign items such as the German Boxer Infantry Fighting Vehicle and PzH-2000 self-propelled howitzer, the Norwegian National Advanced Surface-to-Air Missile System (NASAMS), the American High Mobility Artillery Rocket System (HIMARS) long-range ground-to-ground missile, and the French Camion Équipé d’un Système d’Artillerie (CAESAR) self-propelled howitzer.
Moving to domestic manufacturing of everything the Lithuanian Armed Forces require is wishful thinking. The Israeli example indicates that a policy of full-arms self-sufficiency for a small state is not feasible. Yet it is possible for a small state to support an indigenous defense industry through a realistic, clever, balanced, and synchronized strategy. Such a policy should focus on how to enable local companies to innovate, enter global supply chains, and manufacture combat-worthy end items that are competitive in international markets.
Available tools for innovation in the defense sector in Lithuania
For a small state to support its own defense sector, it requires products that are competitive in the global market. This, in turn, requires investments in research and development that will lead to the production of innovative products. Fortunately for Lithuanian defense firms, they have the opportunity to tap into national, European Union (EU), and NATO programs and initiatives meant to foster such innovation.
At the national level, there are so many different ministries and organizations working in this area that the problem is how to keep up with the various initiatives. The Ministry of Defense just recently introduced a trial program allowing companies to test their prototypes with military units. The Ministry of Defense also has plans to support innovation projects with up to $322,000 per year; it has already provided $14.5 million in accelerator and venture capital-like funds for those projects, which will be administered by other governmental agencies in the upcoming years. The Research Council of Lithuania, situated within the Ministry of Education, Science, and Sport, can provide funds up to $80,000 per project for research and development projects that address needs identified by the Ministry of Defense. The Ministry of Economics and Innovation has multiple programs supporting startups and small- and medium-enterprises (SMEs). In parallel, private investors are looking for investment opportunities in promising startups or SMEs, though these tend to go only to products that have dual military- and civilian-use potential. Lithuania has multiple defense associations that help indigenous and international companies find partners and facilitate collaborative projects. At the policy level, Parliament encourages investments in the defense manufacturing sector through tax benefits. Ministers from four ministries (Defense, Economics and Innovation, Inner Affairs, and Foreign Affairs) approved a policy statement that clearly allocates responsibilities for implementing the various elements of defense industry policy. Lithuania will likely soon adopt the proposed Law for the Defense Industry, which includes an offset obligation for future major defense contracts above $52 million.
At the EU level, Lithuania has multiple opportunities to join initiatives and request grants to develop innovative military solutions. One of the most important initiatives is the European Defense Fund. Each year, it supports around 30 “calls” with around $1.3 billion of funds. Other EU programs are able to support defense and security research and development as well, such as Horizon Europe, Digital Europe, and the Connecting Europe Facility. Additionally, Horizon Europe, along with the CASSINI accelerator, supports research and development for space.
At the NATO level, there are two major opportunities to win funds for defense innovations. The first is NATO DIANA. In that program, startups can propose solutions to designated challenges. It is planned that in the first stage of each challenge, as many as ten different applicants will receive grants of up to $107,000 each. In the second stage, two applicants will get up to $322,000 each to produce a technology demonstration. The second opportunity is the new NATO Innovation Fund, which will operate with a budget of over $1 billion annually, though at this moment there are few details about how it will operate.
Of course, there are other ways to stimulate a defense sector other than financial support. Lithuanian researchers can network, share research, and collaborate in scientific activities through both the European Defense Agency and the NATO Science and Technology Organization.
The war in Ukraine will likely continue to provide impetus to European efforts to bolster the indigenous defense sector.
A Good Foundation for Growth
As War Room readers are likely unfamiliar with the small Lithuanian defense industry, a brief overview of the existing sector will be useful. There is only one government-owned factory, the Giraites Ginkluotes Gamykla, which manufactures high-quality small-caliber ammunition. In the private sector, there are more than sixty small- to mid-sized firms specializing in various dual-use applications, some of which are on the cutting edge of technology. These include high-end photonic solutions; short-wave-infrared thermal night vision systems; lasers; biotechnologies; rapid and high-quality response to cyber threats; nano-satellites; drones; maintenance, repair and operations; and communication systems. Nevertheless, most indigenous companies currently have limited research and development capacity, and the country has just two specialized research and development companies. The Baltic Institute of Advanced Technology specializes in radio frequency, artificial intelligence, and augmented reality / virtual reality for military user experience and interface design solutions. The Center for Physical Sciences and Technology focuses on laser technologies, electromagnetic measurement, military clothing, and protection. There has been a slight increase over the last five years in both the number of defense companies and the number of products they offer, a result of increased research and development investment and higher demand within a deteriorating regional security situation.
The war in Ukraine will likely continue to provide impetus to European efforts to bolster the indigenous defense sector. Though that war has proven that legacy systems remain important, it has also highlighted the importance of indigenous capacity and what determined small- and medium-sized countries can achieve. Indeed, some Lithuanian companies have sold their products to Ukraine, and are even testing and improving those products as they provide maintenance and support against an opponent who is continuously employing new countermeasures.
With many of the innovation programs noted above still in their early stages, it is too early to assess their success. Among the national programs, the Ministry of Defense has announced competitions for various requirements, such as loitering munitions, electric motorcycles, laser communications, sensors to detect vehicle movement, and radar signature analytical systems. This initiative led to the production of a number of successful prototypes, some of which were tested, but so far none have transitioned to actual procurement. Nonetheless, this initiative has helped cover development expenses and boosted the technical expertise of the competing firms, allowing them to continue further work.
Meanwhile, Lithuanian companies have been active in European Defense Fund activities. In 2021, the Baltic Institute of Advanced Technologies is involved in eight of the nine selected projects that, in addition to many different EU partners, also include other Lithuanian organizations and firms such as ADOS-Tech, the Center of Physical and Technological Sciences, and Aktyvus Photonics. In 2022, the Baltic Institute of Advanced Technologies was one of the most active participants; it was a consortium partner in five different selected projects. Additionally, Elsis Pro and Kongsberg NanoAvionics won two projects, and the Center for Physical Sciences and Technology won one invitation.
It is still too early to know whether Lithuanian projects will do as well in the new NATO initiatives.
The Way Ahead
Small states suffer from the inherent weakness of being unable to independently enjoy any economies of scale. To be viable, it is necessary for their defense sectors to sell products or services to other states, most likely within the EU or NATO. This is a very competitive market, and so Lithuania and other small states must constantly improve to have a chance to play a role among the significant players. Regulations governing the defense and dual-use industry sectors must be friendlier than in other EU and NATO states. The government must be able to invest directly in the most promising technologies, either by establishing a government-owned manufacturing factory or by acquiring shares in private ventures. The government must also carefully weigh trade-offs in cost and long-term economic and strategic interests when procuring from non-national suppliers, having some technologies transferred to local companies in partnerships, or continuing established contracts with Lithuania. In making these decisions, it is important to maintain a long-term perspective.
To maximize the advantages gained by the many different EU and NATO initiatives, Lithuania must encourage as many of its commercial and scientific entities to pursue defense research and development. This competition builds expertise, attracts investment, and creates networks with foreign defense firms. This participation also increases the return on national government investments toward the same goal. Though many Lithuanian companies are already involved in the European Defense Fund, this venue could be exploited even more through several measures. First, the Lithuanian government could provide co-financing packages for local participants in research activities. Second, it could advocate for the EU to increase the budget for this particular initiative to the initially agreed level ($5.5 billion was cut due to COVID-19). Third, Lithuanian companies should push the Ministry of Defense to propose projects for the European Defense Fund calls that would benefit the indigenous defense industry.
More generally, private-public cooperation should continue to deepen. Lithuanian ministries and organizations involved in defense and dual-use research and development should consult the Lithuanian Armed Forces to ensure that they are working on projects relevant to end users. To facilitate this cooperation, the Lithuanian Armed Forces must have a separate entity devoted to innovation.
In sum, small countries have the ability to innovate. But to do so, they must pursue multiple channels of cooperation to exchange requirements, expertise, and knowledge. These many efforts also require cooperation among policymakers, regulators, practitioners, academics, investors, and businesses.
Major Donatas Palavenis of the Lithuanian Armed Forces is a junior researcher at the Baltic Institute of Advanced Technology and is currently serving at the Warfare Institute. He is also a doctoral candidate at the General Jonas Zemaitis Military Academy of Lithuania. His research interests are defense industry, defense policy, political economy, defense economics, and arms procurement. Contact details: email: email@example.com; website: https://palavenis.wordpress.com/
The views expressed in this article are those of the author and do not necessarily reflect those of the Lithuanian Ministry of Defense, the Lithuanian Armed Forces, or the Baltic Institute of Advanced Technology, U.S. Army War College, the U.S. Army, or the Department of Defense.
Photo Description: Vilnius Skyline – Vilnius, Lithuania
Photo Credit: Maciek Lulko via Flickr