NATO’s tiny but mighty frontline economies | Business Beyond

NATO’s tiny but mighty frontline economies | Business Beyond

Estonia, Latvia and Lithuania: Together, they share a more-than-1000-kilometre long border with Russia and Belarus. But as the war in Ukraine drags on, their position – right on NATO`s frontline with Russia – puts them at heightened risk. I want to know how the Baltics are protecting themselves from Russia. And to find out, I`m going to speak with people directly involved in the process. We’ll zoom in on three industries: cybersecurity, energy and the defence. Safeguarding the Baltics – coming up on this edition of Business Beyond. The Baltics regained their independence around thirty years ago when the Soviet Union collapsed. At that time, their economies were in tatters. But the upshot was that leaders could design new systems from scratch. They created innovative and business-friendly environments that gave rise to billion-dollar companies. They also built super-online societies, where everything from filing your taxes to – in the case of Estonia – voting in an election, takes place on the Internet. These digital economies have massive advantages.. But in times of conflict, they open up another front: “Cyberattacks have, in a way, become a part of the toolbox of Russian Federation’s diplomacy. If you say or do something that is not accepted by them or that is counter to their narrative, then immediately after that, there is a cyber attack to follow.” That was Gert Auväärt, Director of Cybersecurity at Estonia`s Information System Authority. I asked him to describe some of the cyber attacks his agency has had to deal with: “Perhaps the most known attack on Estonia, or not the most known, but one of them was last year in autumn, in 2023, when our national train system was attacked. For about 36 hours, people were not able to use their cell phone to buy a ticket or to see when the train is coming or to show the ticket when entering the train. And nobody uses paper tickets anymore in Estonia. All the tickets are in the mobile phone.” There are countless other examples of recent attacks – on everything from government portals to hospitals and even central heating systems. But one remarkable attack happened on May 9th, in Latvia – when people watching the TV news were suddenly served up images of Moscow`s Victory Day parade instead. May 9th is when Russians celebrate the defeat of Nazi Germany. I asked Baiba Kaskina – she heads up Latvia`s cyber security agency – how it happened: “So the resource that was breached, it was physically in Latvia, but it was administrated and owned by a company from another country, from EU. Our television company was using this resource for broadcasting. So exactly how it was hacked, I cannot disclose, but the goal obviously has been to have this access and on the right date.” The heightened threat of cyber warfare from Russia – especially targeting supply chains that cross international borders – has prompted security agencies to beef up their resources. “In my case, the cybersecurity agency of Estonia, the people working here has more than tripled and the budget more or less quadrupled over the last two years. But we are still along the road of getting to the minimum level to protect because, again, I come back to the fact that we have nine incidents with an impact every 24 hours, 3,314 incidents last year. And already in the course of the last two quarters of this year, or the second quarter is still ongoing, there’s been more attacks than at the same time period last year. So the tendency is going up. This is the new reality. With the threat level so high, government agencies have to compete for talent: “It’s a challenge. And for us, it has become even more of a challenge because of all those unicorns, the companies exceeding 1 billion. There’s about 10 of them operating from Estonia now, and they are all in the tech sector, all in the IT sector. For a government agency, it is very hard to compete with their salary level and to get all the talent that we need to protect our systems.” When it comes to cyber security, international cooperation is key. In Latvia, authorities have teamed up with the country’s NATO partner, Canada, to fight cyber crime: “We have been conducting threat hunting operations together with Canadian armed forces since 2022. So there are cyber operators from Canadian armed forces working together with us, on threat hunting operations on our critical infrastructure on our public sector.” That reference to the public sector is key. With taxes, health data, education records and most other public services primarily taking place online, the stakes of cyber warfare could hardly be higher: “the more you digitize your services, the wider the attack spectrum becomes. But what you need to do in such a scenario is this secure by design approach, make it resilient from the get-go, build systems in a way that security is an inherent element in there.” Another area the Batlics have been focussing on safeguarding is ENERGY. You can see why. In the immediate aftermath of the war in Ukraine, things got very expensive, very fast: Inflation was an issue across the EU – but it was especially extreme in Latvia, Lithuania and Estonia because of their heavy reliance on Russian gas. All three nations took action to end that dependence as quickly as possible. Nowhere did it faster than Lithuania. In 2020, 96 percent of the country’s energy imports came from Russia. Today, the figure is zero. Darius Silenskis has been at the forefront of that change. His company, KN Energies, operates Liquified Natural Gas terminals – infrastructure that’s been KEY to ending the reliance on gas imports via pipeline from Russia. The company built its first LNG terminal at the port of Klaipėda in 2014 – the same year that Russia annexed Crimea: “Before the infrastructure appeared in 2014 in Klaipėda, actually, we had only one channel of the gas supply. That was a grid coming out from Russia. We recognized the threat and the risk.” One of those risks: price manipulation from Russian state energy giant Gazprom: “We were suffering highest prices in European continent because being an inconvenient partner or, let’s say, consumer of the gas which was not, let’s say, following or supporting, let’s say, the political line of the Eastern neighbors.” The Klaipėda LNG terminal is aptly named “Independence.” Lithuania now no longer relies on Russian gas – having replaced it with imports of LNG from countries such as the Norway and the United States. Other allies of Ukraine are benefiting from the company’s know-how. KN Energies recently won a tender to maintain four LNG terminals on Germany’s North Sea Coast. “Other developers, major players, started to approach us. Guys, we saw your project. Well done. Maybe you can help us in some in some scope of our projects.” Estonia and Latvia have also ended their dependence on Russian gas. And all three countries are in the process of quitting the Russian and Belarussian electricity grid – connecting to the European network via Poland instead. But have they got the financial resources to deal with an even more ominous threat? Following Russia`s invasion of Ukraine,all three governments boosted their defense budgets considerably. Leaders are paying special attention to the possibility of Russian military aggression in three areas: the eastern Estonian city of Narva – where 85 percent of the population is ethnically Russian, the region of Latgale in eastern Latvia and the Russian enclave of Kalininingrad. It’s connected to Belarus via the Suwalki Gap -a 65 kilometer stretch that’s often touted as a potential flashpoint for a confrontation between Russia and NATO. “ I must reiterate once again that the security of the Baltic states directly depends on Ukraine`s victory”. The Baltics are among the world’s biggest per-GDP spenders on Ukraine. And all three countries are also well exceeding the NATO defense spending target of 2 percent of GDP. “Russia is prepared for a long confrontation and so must we. For that, we need to increase our defence budgets. Estonia is now spending more than 3.2% of GDP on defence.” The additional money is being spent on increasing troop numbers, buying new weapons systems, expanding military service and boosting cyber security. But is this increased defense spending having any impact on businesses on the ground? I asked the CEO of the Estonian Defence and Aerospace Industry Association. He told me exports of defense systems have gone up. “Those numbers has increased, let’s say 40 %. And of course, the main market, not main market, but the biggest export revenue came from Ukraine.” Defence companies have also noticed a difference in banks’ eagerness to lend: “Even the Swedish banks, which been before very conservative to support the defense industry, has now, as they said, the moral compass has a bit changed. They also now see this potential in these kind of markets.” As a small country, Estonia`s defense companies can`t compete on price or quantity. But they HAVE built up a niche in specialized high-tech systems …attracting interest from bigger international players, like Germany`s Rheinmetall: “We have the company called Defsec Intel. They are providing situational awareness systems. Actually, that’s joint venture with Rheinmetall, for example. Rheinmetall supporting also Ukraine, and they saw this kind Systems that was made in Estonia, and what the Ukrainians were needed, they financing this project.” So defending Ukraine is the main mission. But what about protecting themselves? “You see, we have lived with Russia through the history, and this rhetoric has been… It’s not the first time this rhetoric, and of course we don’t have so maybe some pleasant historical memories from the past. Of course, how it explained the best way, we do not have panic in Estonia. Okay, tomorrow we’ll start the war. But yes, we definitely be aware the situation can escalate.” We often hear what’s happening in Ukraine described as a “war on Europe’s doorstep.” For the Baltics, that’s literally true. And what struck me the most about the people I spoke with was their cool heads. Whether it`s managing LNG terminals, sending highly advanced defense systems to Ukraine or countering the latest cyber threat, these small countries have no choice but to keep calm and carry on: “Breathe through the nose and out through the mouth. Basically, it’s a job and it’s interesting, but of course, there’s a lot of stress involved.” And that’s it from this edition of Business Beyond. Let me know if you have any thoughts on the Baltic economies. And also, do check out my colleague Steven´s recent story about why Europe is struggling to develop a unified defense industry. Until next time, from me and team, it’s bye-bye and take care.

Estonia, Latvia and Lithuania collectively share a more-than 1000-kilometre-long border with Russia and Belarus. Having regained their independence after the collapse of the Soviet Union some three decades ago, these three small countries have developed innovative and business-friendly economies. But as the war in Ukraine drags on, their position – right on NATO`s frontline with Russia – once again leaves them facing an existential challenge. In this edition of Business Beyond, we zoom in on three industries: cybersecurity, energy and defense, and assess how the Baltics have responded to and adapted their economies in the face of Russian aggression. From cyber attacks on critical infrastructure to eliminating dependence on Russian gas and preparing for a possible invasion, this is the story of how three nations are fighting for their future on several fronts.

00:00 Intro
01:14 Cyber Security
05:50 Energy
08:32 Defense
12:12 Conclusion

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