Defence industry – a new growth sector

2024-04-11 at 13:25 Timo Löyttyniemi

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.

TLö blogi 2020  

Recent posts


acceleration active investing added value AI alternative investments asset classes austerity measures authoritarian governments baby boom baseline capitalism carbon border tax carbon emissions carbon footprint carbon intensity carbon neutrality carbon risk carbon tax carbon-neutral economy carbon-neutrality central banks circular economy climate change climate commitments climate crisis CO2 emissions collateral commercial paper market commodities concentrated markets contingency plan contrarian corona crisis coronavirus coronavirus crisis countermeasures covid crisis covid economy crises crisis crypto currencies currencies debt burden debt structures decision-making defence industry defence technology democracy demographic trends demography dependency ratio depression derivatives development digital money digitalisation dilution disease monitoring system diversification ECB economic competition economic development economic growth economic policy economic system economy effective treatment electricity exchanges emergency measures employment figures energy export energy exports energy imports energy prices energy war environmental policy equity market equity markets escalation ESG EU euribor exchange rates expected returns external borrowing FAAMG Fed financial crisis financial market financial markets financial stability fiscal policy fixed income investments fixed-income investments forecasting fossil fuels free trade funding ratio geopolitics global trade globalisation globalization government debt government finances green technology green transition growth healthcare systems hedge funds illiquid assets increase in prices indebtedness index investing index weighting indices inflation institutional investor institutional investors interest level interest rate interest rate level interest rates internal market international trade investment beliefs investment environment investment returns investment risk investments investments contribution approach level of risk liberalism long-term return low-carbon economy market crash market economy market forces market interest rate market movements market portfolio market rallies market reaction megatrends miracle momentum monetary policy ownership policy pandemic pension investments pension investors pension liability pension promise pension system pension systems planning political decision-making portfolio structure positive side effect predatory traders pre-funding preparedness presidential elections price fall private equity private markets protectionism real estate investment real estate investments real estate market real estate sector recession regulation renewable energy renewable natural resources rescue packages responsibility restrictions returns on investments risk bearer risk level risk management risk profile Russia sanctions scenarios security investments short squeeze sovereign debt spill-over effect stagflation state state ownership stimulation stimulation packages stock market stock markets stock prices stock-exchange markets stocks strategic allocation strategic autonomy strategy success support measures supportive actions sustainability taxation the leading powers timeframe for liabilities timing totalitarianism transition risk uncertainty venture capital virus war war of aggression welfare state