Latvia's defence industry is close to zero and is trying to take its first steps, yet all the preconditions for its successful development are in place.
This is what Uģis Romanovs, chairman of the board of SIA "Defence Partnership Latvia" and SIA "Patria Latvia", the Patria group's companies in Latvia, tells "Dienas Bizness" in an interview. As with any sector that has not existed before, the military industry — and Patria too — has to confront questions to which there are no answers or solutions at that particular moment, but the Ministry of Defence looks for them and finds them.
What is the situation in Latvia's defence industry?
The Defence Law adopted in March this year stipulates that Latvia's defence industry consists of those businesses and scientific institutions engaged in the development, manufacture, repair or disposal of military or dual-use technologies or products. At present the number of companies in Latvia that would meet this definition is small; moreover, if you add up the contribution of defence industry companies to Latvia's economy, the number of people employed in the sector, the companies' combined turnover, and the volume of investment and exports, it is safe to say that the defence industry as a national branch of the economy does not currently exist. But... we are taking the first steps, and the country has all the preconditions for the sector to develop successfully. The defence industry law was adopted in March, and public and political understanding of the defence industry's role in national defence, as well as in the development of Latvia's economy, has grown. In essence, the defence industry is gradually turning from an obscure sector — one that certain groups in society even considered undesirable — into a self-evident field like any other.
Of course, this industry is very specific, because it has only one potential customer in Latvia – the Ministry of Defence. If the ministry places orders, companies in the sector can manufacture; if it does not, the scope for working and, all the more so, for developing is very limited. Orders from the Ministry of Defence are essentially the only thing that can set the military manufacturing segment in Latvia in motion. Experience abroad shows the same. Without domestic orders it is very difficult to develop the sector, including gaining access to export markets abroad. At the same time, the state must be able to formulate a defence industry development strategy, defining the sector's role in the national defence system, what its contribution to the economy should be, what the priorities in research and development should be, and the priority areas in which the national defence industry must be able to provide support to the armed forces; it must also define international cooperation priorities and other factors that would steer the sector's development onto a trajectory consistent with national defence policy.
Unfortunately, at least in the public domain, Latvian officials have not defined these objectives to date.
How is Latvia's 6x6 order progressing?
The contract signed in 2021 for an order of more than 200 Patria 6x6 armoured personnel carriers provided not only for the delivery of combat vehicles, but also for the creation of a very specific security-of-supply system in Latvia. On signing the contract, the Finnish company undertook to transfer to Latvia the technologies needed for the manufacture, maintenance and repair of the Patria 6x6, and to ensure the involvement of local companies in Patria's global supply chain; it was also stipulated that 30% of the contract's total value must return to the Latvian economy. As a result, within less than three years a cluster of Latvian companies was created that currently manufactures components for the armoured personnel carriers and carries out maintenance and assembly of the vehicles. At present six Latvian companies are active in the Patria 6x6 cluster. At the same time, any company wishing to work in this cluster must meet certain requirements. Specifically, the company must have good financial indicators, appropriate technological equipment and specialists, and must be ready to invest funds in adapting its plant and production processes to the needs of manufacturing military goods and in training staff — and, of course, it must obtain a special permit for commercial activity involving military goods. Only once a prospective Patria partner has carried out the necessary preparatory work, obtained a licence and passed Patria's business partner selection process does the technology transfer process begin, which can take several months. Only once the transfer is complete does the company get to real orders. For example, one of our largest cooperation partners in Latvia, SIA "EMJ Metāls", has invested several million euros in purchasing equipment (unique in the whole Baltic region), adapting infrastructure and training staff, and is currently manufacturing armoured personnel carrier hulls. Most of the hull components too – hatch covers, doors, steps, flotation equipment and so on, as well as the chassis frame – are manufactured in Latvia.
Parts for the armoured personnel carriers are supplied by SIA "SFM Latvia", SIA "Lanos", SIA "KNK Mefab", SIA "Metaro" and SIA "Steel Profi". All of these companies have acquired the necessary knowledge and competences, received the relevant permits and been included in Patria's global supply chain. The result is a gain for the Latvian economy, materialising in production volumes, new jobs and taxes paid. At present Patria is not actively looking for new cluster members in Latvia, but company interest in possible cooperation is high, and decisions on their compliance with the requirements and their ability and readiness to join the global supply chain are taken by the parent company in Finland. There is no denying that it is very difficult for new companies to break into the defence industry; large manufacturers mostly rely on existing supply chains and are reluctant to take on new partners. The Ministry of Defence helped Latvian companies overcome this barrier by setting security-of-supply requirements for Patria, and the first positive results of that decision are already visible. It should also be borne in mind that this policy has created a core that, in a crisis situation, is not only capable of continuing production but also of carrying out the necessary maintenance and repair work. Of course, it must be taken into account that many vehicle parts — engines, tyres and several assemblies of the armoured vehicle, for instance — were, are and will continue to be supplied from abroad, which is why they need to be held in warehouses in Latvia. In practice, a defence industry is only now beginning to take shape in Latvia, and its contribution, while still very small, is already being felt.
What are these gains?
Patria's orders to Latvian companies already exceed 20 million euros, and a modern Patria 6x6 armoured vehicle plant has been built in Valmiera, currently employing nearly 30 people, with that number set to be considerably higher next year. The project has triggered private investment, which in turn has increased the competitiveness of the companies involved and broadened the range of what they can offer. To this must be added the gains made by Patria's Latvian suppliers and their contribution to employment, as well as to tax revenue for the state budget. Another gain, hard to assess in monetary terms, is people's knowledge, competence and skills — and not only in private companies, but also in public administration, specifically the Ministry of Defence.
Over the coming years the Ministry of Defence has to deliver more than ten defence capability development projects that are huge by Latvian standards, worth several billion euros, while using those projects as the basis for building a national defence industrial and technological base. In my view, implementing the Patria project has given the Ministry of Defence new experience that can be used in delivering other projects, as well as in adapting internal processes, procedures and the organisation itself to the new situation. In the current geopolitical circumstances, many processes that in peacetime could take many years now have to happen very quickly.
How long did it take Patria to get to production in Latvia?
The Ministry of Defence signed the contract with Patria in August 2021, and the first armoured vehicles were delivered to the National Armed Forces as early as November that year. Partial assembly of 6x6 armoured vehicles at "Defence Partnership Latvia" began in spring 2022, after the company's specialists returned from a six-month placement in Finland where they acquired the knowledge and skills required for assembly. In May 2024 we began full-cycle 6x6 assembly at the new plant in Valmiera. In the military industry, delivering a project of this size in such a short period does not happen often. Construction work is still under way in Valmiera on armoured vehicle testing infrastructure and one more warehouse, which are due to be ready this August. Testing is very important in armoured vehicle manufacturing, which is why a swimming pool is being built in which the vehicle's watertightness, the operation of its propellers and its buoyancy will be checked; a hill for testing brakes and a winch test site are also being built.
How large a capital investment is needed to build a Patria plant of the appropriate standard?
Total investment amounts to 10 million euros, covering not only the equipment intended for production and assembly, but also the testing infrastructure and warehouse mentioned above, as well as the construction, financed by Valmiera council, of the plant and administrative building that Patria leases from the local authority.
Is there a clear development vision and forecast for the coming years?
First of all, the obligations regarding the volume of 6x6 armoured vehicles to be delivered to the Latvian Armed Forces have to be met. That means 30 such vehicles must be produced each year. Alongside that, technical maintenance of the armoured vehicles already delivered must be carried out and, where necessary, conversion or upgrades to suit the customer's needs. In the longer term we could also become involved in delivering other defence capability development projects in Latvia.
Could the Patria plant in Valmiera also assemble armoured vehicles for foreign armed forces?
The current geopolitical situation and the escalation of armed conflicts in Ukraine and the Middle East have significantly increased demand for combat vehicles. Total orders for the Patria 6x6 at present exceed 700 vehicles.
As the Patria group has only two 6x6 plants – in Hämeenlinna in Finland and in Valmiera in Latvia – it is likely that part of such a large order will be fulfilled in Valmiera. The existing plant is not specifically designed for any particular number of armoured vehicles, but working two shifts its capacity would be sufficient to turn out up to 160 vehicles a year. That, though, is more of an illustrative example. Besides Finland, which leads it, the Patria 6x6 armoured vehicle programme involves Latvia, and Sweden and Germany have joined as well. Germany, admittedly, has so far signed only a research and development agreement. Other countries have also expressed an interest in joining the Patria 6x6 programme. I have no doubt that armoured vehicles for other countries' armed forces will soon be manufactured in Valmiera too.
To what extent does the geopolitical situation affect research and innovation in the defence sector?
There is no denying that military conflicts galvanise and mobilise research and innovation in the defence sector. An outstanding example is what is happening in the field of drones. Insights gained in combat conditions create the preconditions for the purposeful development of these products, producing new, innovative solutions that make it possible to gain a relative advantage over the adversary in military operations. At the same time, it must be pointed out that innovation processes in the defence field are comparatively slow and bureaucratic — a result of the complexity of military technologies, high costs, long-term and high-risk investment, and bureaucracy itself. The European Union is taking on an ever greater role in the development of the defence industry, including research and the introduction of innovation, creating opportunities to obtain funding and conditions for cross-border cooperation on defence-related innovative solutions. Patria too has become involved in research supported by this fund: under the FAMOUS project (European Future Highly Mobile Augmented Armoured Systems), for example, a new highly mobile tracked armoured personnel carrier has been created that is particularly suited to operations in snow conditions and boggy terrain. This product was demonstrated at the "Eurosatory" exhibition in Paris this year. It should be stressed that three companies from Latvia are also involved in the Patria programme. In my view, the major companies of the military industry — Sweden's "Saab", Norway's "Kongsberg" and Finland's "Patria", for example — should take greater initiative in developing the regional defence industry.
What obstacles have you already had to face in delivering the Patria project?
As with any new sector, the military industry has to encounter various obstacles and overcome them. Let me give a few concrete examples. In order for us to issue a vehicle certificate of conformity, various kinds of test drives have to be carried out with each 6x6 armoured personnel carrier, including covering roughly 200 km on asphalted and gravel roads. This test allows us to make sure the vehicle's systems work in accordance with the specification. In Finland these tests are carried out on public roads, using temporary number plates issued by the Finnish equivalent of the CSDD (Traficom). It should be noted here that all checks are carried out at the plant beforehand to make sure the vehicle can take part in traffic without creating risks for other road users. While delivering the Patria project, we discovered last autumn that the regulatory framework in force in Latvia makes no provision for obtaining temporary number plates, while the National Armed Forces, which are responsible for registering special military equipment, cannot register a vehicle without a certificate of conformity. The Ministry of Defence is currently working to put the regulations in order, and an interim solution has been found – we will carry out the testing in a closed area, delivering the vehicle there on a trailer. A second example concerns taking on trainees at defence industry companies – another situation that needs a solution. The company (and we are probably not the only one) would be happy to take technical college students on work placements, but the regulations bar companies engaged in commercial activity with goods of strategic significance from doing so. The law provides that every person involved in work with goods of strategic significance is vetted by the relevant state security institutions.
At the same time, the law stipulates that such vetting can only be carried out on persons who have been hired.
I am convinced that many more issues requiring solutions will gradually come to light, especially given that the Patria 6x6 is the first of many military capability development projects whose implementation will be used as a basis for developing the military industry in Latvia. In my view, the most important thing right now is for the sector's main players — the Ministry of Defence and companies in the sector — to learn to work together.
At the same time, much has already been done for the sector's development; in my view one of the most significant achievements is the establishment of the State Defence Corporation and the securing of European funding to build a modular charges plant. The corporation's management team, headed by Ingrīda Ķirse, will have a very important part to play in developing the industry in Latvia. Another important detail for the development of the military industry in Latvia will be putting into practice the concept of strategic partnership provided for in the Defence Industry Law. We are eagerly awaiting the Ministry of Defence's drafting of the relevant Cabinet regulations.
The strategic partnership concept provides for the integration of defence industry companies into the national defence system. In other words, a defence industry company that has concluded a strategic partnership agreement with the Ministry of Defence builds and maintains, in peacetime, the competence and capacity that will be needed to provide the relevant services in support of the National Armed Forces during a crisis or military conflict. This model of cooperation works successfully in Finland, for example; its roots go back to the period after the Second World War, when the ending of the armed conflict between Finland and the USSR entailed a limit on the numerical strength of the armed forces. Finland got around this restriction by delegating the tasks of supplying and maintaining the armed forces to industry.