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BUREAUCRACY STALLS DEFENSE ⟩ Opening Ammunition Factory Takes Far Too Long in Estonia

Photo: Harald Groven/Wikimedia Commons
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Lithuania has inked a deal with German defense giant Rheinmetall to build a munitions factory, swiftly amending laws and declaring the project of national importance. Construction is set to kick off in November 2024. Meanwhile, Estonia's defense industry faces a bureaucratic quagmire, delaying their first factory for at least three years.

Lithuanian Minister of Economy and Innovation Aušrinė Armonaitė stated last week that the establishment of the Rheinmetall factory for production of 155mm howitzer shells in Lithuania is crucial for the country's efforts in raising its defense readiness, and that the Lithuanian government therefore granted the Rheinmetall factory project a special status.

This special status of nationwide importance triggers accelerated procedures, according to which Rheinmetall may start constructing the factory already in four months -- October 2024. A land-lease agreement for the property in Radviliškis district will be signed by the end of July.

In April, the Lithuanian Parliament had passed legislative amendments to create more favorable conditions for major Western arms and ammunition manufacturers to build factories in Lithuania.

Recently, a Russian plot targeting Armin Papperger, CEO of Rheinmetall AG, was uncovered. Rheinmetall plays a crucial role in bolstering ammunition production capabilities for both Ukraine and Lithuania. 
Recently, a Russian plot targeting Armin Papperger, CEO of Rheinmetall AG, was uncovered. Rheinmetall plays a crucial role in bolstering ammunition production capabilities for both Ukraine and Lithuania. Photo: BERND VON JUTRCZENKA

Lithuania did extensive groundwork to attract Rheinmetall, simplifying planning and procurement processes. In 2021, the Ministry of Economy and Innovation launched the "Green Corridor" program to attract large investments, making operations easier and faster for potential investors.

Tallinn Lacks Urgency

Projects granted status of national importance enjoy up to 20 years of income tax exemption. Through this initiative, 14 investment projects have been launched, creating 4,000 jobs and contributing over 1.25 billion euros to the economy.

Estonian officials and politicians, however, lack urgency and seem not to be troubled by it. Jaanus Tamm, a member of the Estonian Defense and Aerospace Industry Association Council and CEO of defense industry company DefSecIntel, stated during a meeting in the Estonian Parliament in May that the defense industry sector could become a new Estonian success story, but that the bureaucracy hampers progress.

It takes longer to establish an ammunition factory in Estonia than in Ukraine, Finland or Latvia according to Jaanus Tamm, CEO of defense industry company DefSecIntel Solutions.
It takes longer to establish an ammunition factory in Estonia than in Ukraine, Finland or Latvia according to Jaanus Tamm, CEO of defense industry company DefSecIntel Solutions. Photo: Madis Veltman

Tamm claimed that starting a defense sector plant in Estonia would take three years. "Our solution is to produce elsewhere. We chose to produce in Ukraine, as we need to produce immediately," said Tamm, adding that it is even easier to build a factory in Finland or Latvia than it is in Estonia.

The necessity of for an Estonian defense industry park has been discussed since the beginning of Russia's full scale aggression in Ukraine. On February 15, the Estonian government finally initiated a special national plan and strategic environmental assessment for its development. Three possible locations for the defense industrial park have been established in different regions of Estonia.

Indrek Sirp, the Ministry of Defense's special adviser for defense industry development, said that production in the park could begin at the end of 2026 at the earliest. "As Tamm said, it takes three years," Sirp noted.

Current Process Utterly Slow

Kalev Koidumäe, CEO of the Estonian Defense and Aerospace Industry Association, noted that while companies seek faster procedures, Estonian laws create delays. "Authorities are bound by the law, which raises the question for lawmakers: how can we reshape the legal framework to expedite these processes?" he asked.

Estonia's defense industry sector has thrived regardless of these bureaucratic challenges. The Estonian Defense and Aerospace Industry Association currently comprises 140 companies employing 8,500 people. Last year, 140 companies achieved a total turnover of 330 million euros, with 200 million euros generated from export revenue.

This skyscraper in Tallinn houses six Estonian ministries, including those responsible for designing new regulations that could expedite the notoriously slow Estonian public planning processes.
This skyscraper in Tallinn houses six Estonian ministries, including those responsible for designing new regulations that could expedite the notoriously slow Estonian public planning processes. Photo: Mihkel Maripuu

Koidumäe mentioned that they are closely monitoring Lithuania and Latvia, where expedited processes are used for significant defense investments. "Companies looking to invest evaluate the economic environment's attractiveness before making their decision," he noted.

Germany's Strategic Move

Koidumäe also highlighted that Rheinmetall's decision to build a factory in Lithuania is part of broader strategic cooperation between Lithuania and Germany. Lithuania has a history of purchasing defense equipment from Germany, which also leads the NATO Enhanced Forward Presence battlegroup stationed in the country. 

Estonian Minister of Economic Affairs and Communications Tiit Riisalo acknowledges the concerns raised by the defense industry regarding legal restrictions and the lengthy permit application process, which complicates the development, production, and transportation of defense technologies. While the government discussed reducing bureaucracy for defense companies on July 4, Riisalo noted that the lengthy planning and permit processes are characteristic of the entire Estonian business environment.

The Minister added that it is unacceptable for slow paperwork to hinder attracting investors and implementing plans. Therefore, the ministry's economic plan includes the preparation of a green corridor for investments, which is now in its final stages.

However, Minister Riisalo's plan does not expedite the establishment of a potential ammunition factory or a military training area. Both Latvia and Lithuania have demonstrated far greater agility in streamlining nation wide planning processes for defense purposes. Estonia is currently struggling with expanding an existing military training area in Southern Estonia and establishing a defense industrial park as part of Europe's effort to boost ammunition production capabilities. Currently, there is no indication from Estonian authorities that the issue is being addressed as a matter of urgency.

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