Just days after Russian jets briefly entered Estonian airspace last month, causing 12 minutes of tension, Kusti Salm stood in his office, overlooking the Tallinn airport, holding a prototype of a miniature missile in his hand.
This missile, dubbed the Mark 1, was developed last year to intercept enemy drones at close range. It’s now poised for its global market debut, with Salm, the CEO of Frankenburg Technologies, hoping it will bolster Europe’s air defenses against Russia. He frankly admits, “Clearly, we are unprepared.”
However, this 2-foot-long missile is already a symbol of a burgeoning defense industry in Estonia, one that the government is counting on to revitalize its struggling economy. This strategic shift is driven by Estonia’s deep-seated national apprehension about Russia’s invasion of Ukraine and the lingering fear that it could be President Vladimir V. Putin’s next target.
Erkki Keldo, Estonia’s minister of economy and industry, recently told reporters in Tallinn, “If we invest into new defense companies, they will offer high value in the Estonian economy.”
He added that these investments also provide “reassurance that Estonia is well protected.”
Officials in Estonia, a former Soviet state bordering Russia, have for years openly expressed concerns that their country could face invasion if the conflict in Ukraine subsides and Moscow has a chance to rebuild its military. Putin has consistently stated his ambition to halt NATO’s expansion into what Russia considers its sphere of influence, particularly nations that were once part of the Soviet Union.
With a population of approximately 1.3 million and one of NATO’s smallest militaries, Estonia lacks the capacity to produce large-scale weapons like tanks, artillery, or fighter jets, nor does it possess a vast budget for significant foreign arms purchases.
Nonetheless, Estonia is widely recognized as one of the world’s most technologically advanced nations. Its officials are leveraging this digitally savvy workforce to develop cutting-edge defense systems that rely heavily on robotics, artificial intelligence, and cybersecurity.
For instance, the Mark-1 missile that Salm aims to sell to European militaries uses AI to precisely target low-flying drones. Another firm, CybExer Technologies, already provides software to the British, Ukrainian, and Portuguese armies to assess the cyber resilience of their online networks. Meanwhile, SensusQ, an intelligence software company, processes open-source information to support battlefield operations and emergency responses.
Kalev Koidumae, head of Estonia’s defense and aerospace industry association, emphasized the country’s unique approach: “To be a small nation and small industry in this domain, you have to be somehow unique to be successful on the very tough defense market. It is to innovate your product.”
Roughly 70 percent of Estonia’s domestically produced weapons and defense technology is exported. Last year, the country’s military industry generated €500 million ($580 million) in revenue, with about €350 million from overseas sales. This marks a significant increase, more than doubling the €200 million recorded in 2020, which included €46 million in exports.
Concurrently, Estonia’s economy experienced a downturn, initially due to the COVID-19 pandemic, and then again after a brief recovery in 2021, coinciding with the outbreak of the war in Ukraine. The conflict led Estonia to cease purchasing cheaper energy from Russia, and a drop in consumer confidence impacted investments, as explained by Mr. Keldo. However, recent data from the International Monetary Fund indicates a gradual economic recovery, projecting approximately 0.5 percent growth in 2025.
In response, Estonia is significantly increasing its defense spending, aiming to allocate at least 5 percent of its gross domestic product to military and other defense initiatives by next year—nearly a decade ahead of NATO’s recommendations. This amounts to over €2.4 billion, which Mr. Keldo stated would be funded through loans and cuts in other government expenditures.
Part of this increased spending includes approximately €50 million dedicated to establishing new factory space in eastern Estonia for defense companies, such as Frankenburg, the manufacturer of the miniature air defense missile, and Thor Industries Ltd, a British firm specializing in plastic explosives.
Furthermore, the Estonian government plans to inject another €100 million into defense start-up companies requiring capital.
Public opinion polls consistently show strong support among Estonians for the defense buildup. This support stems from a deep-seated concern that Russia could launch an attack or that the war in Ukraine might expand further into Europe. This fear is rooted in Estonia’s historical context and its geographical proximity to Russia, a sentiment shared by several other Eastern European nations.
Donatas Kupciunas, a Baltics scholar at the Center for Geopolitics at Cambridge University in Britain, noted that this defense boom illustrates how Estonian officials are striving to deter Russia, “even though they do not really expect invasion anytime soon.” He suggested that Russian cyber or hybrid attacks are more probable.
Kupciunas added that Estonians are primarily focused on deterrence. “They are thinking more about, if Russia wants to do something crazy and if we are prepared, and they see what we have, then they would think twice,” he explained.
In Tartu, Estonia’s second-largest city, the defense industry is becoming an increasingly significant component of the local economy, which saw substantially faster growth than the rest of the country between 2020 and 2023.
As home to the prestigious University of Tartu, the city has long been a hub for tech start-ups, including Playtech, a global leader in online gaming software. The founders of Skype and the ride-hailing app Bolt are alumni of the university, which is currently collaborating with robotics company Milrem on automated space and environmental projects.
Milrem also manufactures remote-controlled ground vehicles capable of transporting supplies or being equipped with a small cannon. These vehicles have been supplied to 19 militaries, including eight NATO member states, and are currently deployed in Ukraine.
Urmas Klaas, the mayor of Tartu, remarked, “This is, of course, a growing sector in Estonia, as the defense spending is going drastically up, and it is growing in Tartu.”
He noted that new factories are being established as defense companies expand their operations in the region. Some of these facilities produce dual-use equipment that also serves civilian purposes, ensuring job security for the manufacturing workforce and contributing to economic stability even when military spending eventually decreases.
Mayor Klaas characterized Russia more as a nuisance than an immediate threat. However, he also mentioned that two years ago, the city constructed underground emergency shelters to protect 40,000 residents and plans further expansion. He also cited instances of navigation systems for local airport planes mysteriously jamming, which he attributed to Russia.
Nonetheless, he pointed to the September incident involving Russian jets in Estonian airspace, which concluded with NATO jets escorting them back into Russian territory, as clear evidence that “NATO deterrence is working.”
“Our people know what kind of regime Russia has, but it is safe in Tartu,” Mr. Klaas concluded. “Even with an aggressive neighbor.”