Latvia mulls state-coordinated ammunition production

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The Ministry of Defence (AM) 's latest plan for the introduction of compulsory military service has been welcomed by the Latvian government. In the shadow of the Ukraine war, AM has come up with another intention: to create a state capital company that would supply Latvia with ammunition. The industry looks forward to these plans, as this would help private companies in this sector to develop, Latvian Radio reported July 20.

The Ministry of Defense's State Secretary, Jānis Garisons, told Latvian Television earlier that the state capital company could coordinate the processes rather than turn to production itself.

“We see that a very large deficit has now occurred through the war in Ukraine as well. Some parts are in wait for half a year or a year. Not to mention the ammunition itself. Therefore, knowing that if the situation continues as it is, it could be difficult to build stocks for the armed forces,” said Jānis Garisons, adding that “the biggest problem in Latvia is that we have very many small and capable companies [..], but the capacity is insufficient.”

The establishment of a state company will also require state money. The amounts are not yet mentioned but according to Prime Minister Krišjānis Kariņš, there will likely not be any issues. 

“We need to look at what we need to do so that we can also strengthen our own armed forces. Politically, we have already decided to increase the defense budget to 2.5% of gross domestic product. This year, we have already decided on the allocation of an additional EUR 50 million to the Ministry of Defense, precisely for the needs of our armed forces. And we will continue to invest in self-defense,” said Kariņš.

A common framework for the asset management of the defense industry has long been needed, according to Elīna Egle, Chair of the Board of the Latvian Federation of Security and Defence Industries. Defense industry companies would support the creation of a state agency or company with the aim of coordinating the country's military needs and targeting investment in manufacturers.

“The aim is not to 'cannibalize' those processes that take place in the private sector and in the free market, but to support them directly through public investment. Even though the financial sector particularly until the beginning of the war in Ukraine was very restrained in cooperation with defense companies. It is the situation here that without State aid, it is very difficult for small and medium-sized enterprises to develop new products,” Egle said.

A state company in the defense sector would be necessary as it is a strategic sector where the state can be involved, in partnership with the private sector, said Andris Grafs, head of the Latvian delegation of the Baltic Institute of Corporate Governance.

"The big issue that is not clear at the moment is how this partnership will be implemented, how private companies, which private companies and what conditions, financial investments (…) will be involved in this process. This company should only operate on market terms and not as a public authority or agency. Therefore, the clear objectives and business model, which is targeted not only at the local, Latvian market but also internationally, is a very important aspect,” Grafs said.

Latvia already produces various components which are later used to manufacture military products, as well as finished products like drones, optics systems, equipment, ammunition, and a variety of services in cybersecurity, programming, artificial intelligence, and other areas.

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